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Lord Goldsmith: My Lords, I begin by expressing appreciation to all noble Lords who have spoken for their thoughtful contributions and, generally speaking, for their support of the Bill and its principal elements. The support from my noble friends Lord Sheldon and Lord Barnett was somewhat more cautious, but the fact that noble Lords with so much experience from all sides have spoken—from the staff side, my noble friend Lord Brooke; from the perspective of employment within the organisation, the noble Lord, Lord Newby; from the prosecution and criminal justice side, the noble Lord, Lord Thomas of Gresford; and from particular responsibilities within the Inland Revenue, the noble Baroness, Lady Noakes—has left me somewhat humbled at being invited into this small and select group. I am looking forward to piloting the Bill to the successful conclusion referred to by the noble Lord, Lord Newby. That is my overriding concern.

Before turning to the issues raised, I want to recognise an important point made by my noble friend Lord Sheldon. Both departments have a long and proud history. The new department will not want to lose the best of the culture and tradition. They already have an overlap in culture and tradition and reference was made to their enviable reputation for honesty and integrity. There is a clear determination to build on those important qualities.

By having the incremental approach which the Bill represents—a first stage—and having strong leadership, unified communications and the involvement of staff, to which reference has been made, I and Treasury Ministers believe that this project will prove successful. I want to pay tribute to the staff of the two departments. Throughout their histories, they have delivered services of the highest standard of professionalism, integrity and commitment. We have no doubt that the staff are up to the challenges that integration presents and that they will build on those achievements to create a new, world-class, integrated department.

I turn to the new prosecuting office. I am grateful for the support from the noble Baroness, Lady Noakes, and the noble Lord, Lord Thomas of Gresford, who spoke specifically on it. The noble Lord, Lord Thomas, rightly referred to the report of Mr Justice Butterfield and to some elements of the history of Customs prosecutions. I will not take time today to go into those, but as the noble Lord will know, the Butterfield report contained a number of recommendations both for the investigators and the conduct of prosecutions.

All of those recommendations have been or are being implemented as a matter of priority: for example, improved procedures for handling human
 
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sources of information; heavy investment in training; internal assurance systems reviewed; and in this Bill, proposals for procedures for external validation both in relation to investigations and the prosecution office. That is particularly important in the field for which I normally have responsibility; that is, prosecutions and the creation of the independent prosecutions office. I welcome the support for that.

The noble Lord, Lord Thomas of Gresford, asked specifically whether the existing powers for rights of audience which Customs' investigators have will remain or disappear. They will disappear under Schedule 4 to the Bill. It is right to note that the director will in due course, and once suitable training has been given, be able to designate certain persons under Clause 39 to conduct particular hearings in the magistrates' courts. That mirrors what happens with the Crown Prosecution Service and I am confident that it will be a proper way to proceed.

The noble Lord also referred to the need for resources. I am conscious of the need for all my departments which are involved in criminal justice to be adequately resourced to carry out their heavy responsibilities. That is therefore a matter of importance. However, I also welcome the noble Lord's support for the appointment I announced before Christmas of David Green as director of the new prosecuting office. When the Bill becomes law, it is my intention to appoint him formally to the statutory post of director of RCPO.

A number of noble Lords raised the issue of confidentiality. As the Bill progresses, I hope to be able to reassure noble Lords that the provisions on confidentiality are absolutely adequate and fitting. As I said in my opening speech, there is no intention to water down the importance which is presently given to the confidentiality of taxpayers' affairs. So, for example, the Bill now includes in Clause 3 a declaration to be entered into by new staff. That clause was inserted as a result of the questions raised about the existing oath, to which my noble friend Lord Sheldon referred. No doubt we will return to the issue of confidentiality.

My noble friend Lord Barnett raised a number of questions with which I shall deal before turning to the broader question, raised by a number of noble Lords, on the benefits of integration. In relation to powers, he asked whether, because the Explanatory Notes refer to the risk of inadvertent widening of powers, there was an intention for there to be advertent widening of powers. No, we did not want to make changes to the powers without allowing time for consultation before lessons have been learnt from early integration activity. The provisions therefore transfer the existing powers, but they are to be used in the same way as the existing powers are ring fenced to the particular functions.

My right honourable friend in another place, the Paymaster General, referred to a consultation on that and the noble Baroness, Lady Noakes, asked whether I can say more about the date. I cannot give a firm date at the moment. Treasury Ministers are still considering
 
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what form the consultation will take to ensure that the most appropriate approach is adopted. But as soon as a consultation document is published, it will be available on the Revenue and Customs websites and copies will be placed in the Library of the House. Of course, I will ensure that once a firm date is available noble Lords are made aware of it.

The noble Lord, Lord Barnett, also asked about the payment of rewards and he looked hopeful about those. The legislation does not change the existing practice in relation to rewards—it consolidates the existing powers which are available in each department. Publication of too much detailed information about the rewards would not be prudent. It would risk inviting attempts to exploit or defraud the system. However, I can tell my noble friend that in 2003-04, Customs and Excise spent a total of £946,300 on rewards—payments ranging between £50 and £100,000—while the Inland Revenue made only one payment of £100. Annual payments fluctuate of course. My noble friend can see from that where he should be concentrating his efforts.

My noble friend Lord Barnett also asked why we were widening the offence of unauthorised disclosure. That is because in the past criminal sanctions have not applied to information about Customs' non-tax functions. Those will therefore be brought in by the widening that is taking place. He also asked about the management controls, or administrative safeguards, which would inhibit staff access to information. A number of those are in place already: for example, provision to staff of a unique identification number; password to access computers; access to IT systems only where they need access to do their jobs; reminders; disciplinary action; appropriate training; and guidance.

A number of noble Lords have expressed scepticism about the benefits. We have no doubt at all about the benefits of this proposed integration. Of course, such changes must be based on evidence, but that is why the O'Donnell review was commissioned. It examined in detail all the possibilities for the organisation of the revenue departments, including doing nothing, to see how it would be possible to improve service delivery to taxpayers, effective tax collection, coherent and efficient use of resources. That picks up some of the points raised by the noble Lord, Lord Newby.

The review found clear reasons of principle, supported by evidence, to consider an integrated department, in particular, the fact that well over 1.5 million businesses are customers of both departments. There is strong international evidence in favour of administering direct and indirect taxes together. The conclusion was supported by independent leading figures from business, whose views can be found as annexes to the O'Donnell review.

Of course, it is right to recognise that there are risks in major changes, as the noble Lord, Lord Sheldon, said. Therefore, we recognise the importance of proceeding on an incremental basis and of considering carefully the changes that need to be made. I hope that noble Lords will see that our approach recognises precisely that.
 
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On the costs and benefits that will occur, the management designate of HMRC is committed to assessing those costs and benefits as the necessary changes are developed. As noble Lords have said, work has already commenced and today has produced the current known costs of integration, to which reference has been made, and the reduction of staff detailed in the efficiency technical note.

Let me dispel one suggestion: nothing in what I have said has indicated anything different from the timetable that my right honourable friend the Paymaster General indicated in another place. We have both recognised that integration is a huge challenge and that it will take time to deliver. It is right that integration will develop over time; it will be incremental; and some of the changes such as the formation of a single large business service can be made from the inception of HMRC, but others will take longer. Both the Paymaster General and I are convinced that this incremental approach is the right one and we are in full agreement that the momentum must be maintained throughout the process. Staff savings from the integration will be realised by April 2008 and other changes will be realised as the incremental process continues.

The noble Lord, Lord Barnett, asked when integration will start. The creation of HMRC will start realising some benefits from the outset. I have already referred, for example, to the creation of a large business service, so there will be immediate benefits for such customers as the new organisation begins taking a more joined-up approach to their affairs. However, more will need to be done and work to consider changes needed to deliver further integration is under way.

I shall deal with one or two other points that were raised. I hope that my noble friend Lord Brooke will find helpful what I have said about transfers and about consultations on the effects on staff. He asked about the impact of proposals for moving jobs out of London. I am grateful for what he said about the Manchester office of the Customs and Excise Prosecutions Service, which I have visited several times. We have committed to moving 1,950 posts out by April 2008 and a further 2,300 posts by April 2010, but it is too early to say more about the specific locations. Work is under way. The noble Lord also raised other interesting questions, such as the payment of tax liabilities by credit cards, which is one matter that the new department will no doubt be able to consider in due course.

The noble Lord, Lord Newby, welcomed the decision to transfer tax policy to HM Treasury and I welcome what he said in that regard. He was concerned about staff suddenly having to learn about a number of different taxes with which they were unfamiliar. I can assure him that there will not be a sudden move to train all VAT officers, for example, in PAYE and because of the differences in powers for the different regimes, HMRC is likely to be quite cautious in transferring sets of powers to any individual officer.
 
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After the consultation, when we rationalise the powers, it may be easier for a single team to deal with different functions.

I was also asked about the extension of the powers that the Serious Organised Crime and Police Bill will provide for the revenue and Customs prosecuting officers. Those will not be exercised for tax offences, pending the outcome of the wider review of HMRC powers. That was announced during the passage of the Bill in another place. In addition, the use of those powers will be subject to guidance which I shall issue to ensure that they are used only where necessary and proportionate.

The noble Baroness, Lady Noakes, has indicated that there are a number of areas that may be the subject of further discussion during subsequent stages of the Bill. I look forward to debating those and I look forward to the passage of the Bill through this House.

On Question, Bill read a second time, and committed to a Grand Committee.


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