| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Baroness Noakes: I am extremely grateful to the noble Lord, Lord Sheldon, as he makes exactly the case that I am trying to make. I am not concerned with the day-to-day exchange of submissions, responses from Ministers or discussions leading to decisions on the general management of the tax system but with those rare situations on which one is trying to throw a public spotlight. In those rare situations Parliament would want some kind of interest.
Lord Goldsmith: I am grateful to the noble Baroness. If I may respectfully say so, my noble friend Lord Sheldon comes to the definitional point to which the noble Lord, Lord Newby, referred. We do not interpret Clause 11 as referring only to grave moments of disagreement between those in HMRC and Ministers.
As is clear from my letter to the noble Lord, Lord Holme, from what I have said and from what was said in another place, we have in mind that the relationship
24 Feb 2005 : Column GC360
to which Clause 11 refers covers precisely the frequent and common contacts to which the noble Lord, Lord Sheldon, from his experience, refers. In those circumstances, Clause 11 identifies the importance about generality; that is, to distinguish it from particularity in relation to individual taxpayers' affairs. It is precisely the frequency of those contacts that makes it inappropriate to have the sort of procedures to which the noble Baroness referred.
Baroness Noakes: In a sense, there is not much difference between us, and I think that I shall blame parliamentary counsel for that. Parliamentary counsel uses the word "direction" in the Bill, and in predecessor Bills, in a quite different way from the way in which it has used "direction" in relation to any other public body. That is the source of some of the problem. As the noble and learned Lord has said, "direction" is used to cover those everyday exchanges, and not the exceptional. It is the exceptional on which I am trying to home in.
As the area of difference is relatively small, I shall look again at the issue and try to overcome the difficulties given to us by parliamentary counsel in its use of language that means one thing in one place and a different thing in another. I shall try to come up with a formulation that will adequately express what I am trying to get at; namely, that when Treasury Ministers respond in the case of a disagreement, there is an opportunity for outside scrutiny because we are dealing with a department that interfaces with individual taxpayers, which needs to be protected.
This has been a genuinely very helpful debate on identifying the issue, which is the rare area that the noble Lord, Lord Sheldon, identified. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 [Commissioners' arrangements]:
Baroness Noakes moved Amendment No. 27:
"(1A) The Commissioners shall make arrangements for the establishment of a committee to review whether the internal financial controls of Her Majesty's Revenue and Customs secure the proper conduct of its financial affairs.
(1B) A majority of the committee established under subsection (1A) shall consist of persons who are neither Commissioners nor officers of Revenue and Customs."
The noble Baroness said: Clause 12 states that the Commissioners for Revenue and Customs can make arrangements for how they conduct their affairs. It is permissive. We have no fundamental problem with that. Amendment No. 27 deals with the absence of reference to one set of issues that should be accommodated within the arrangements made by the commissioners: there should be no optionality for the commissioners about making certain arrangements.
The amendment states that the commissioners must set up a committee,
"to review whether the internal financial controls secure . . . the proper conduct of its financial affairs".
In common parlance, it means having an audit committee. We discussed briefly audit committees on our first day in Committee. As I am sure the noble and learned Lord is aware, they are regarded as essential in the private sector, particularly for listed companies. The obligation is now in the combined code, although it has been required for some time.
Audit committees are also widespread in the public sector and the non-profit sector. For example, your Lordships' House has an audit committee. Customs and Excise currently has an audit committee chaired by one of its non-executives. I am not sure about the position in the Inland Revenue—perhaps the noble and learned Lord will be able to say—but I am sure that it has something similar.
It is also increasingly the case that legislation for public bodies specifically provides for audit committees. We can look at most of the recent Acts that have set up public bodies—I referred during our first Committee sitting to the Pensions Act 2004, the Bank of England Act 1998 and the Health and Social Care Act 2001, and there are a lot more. They set up audit committees as a hard-wired element of the structure because it is such an important area. Amendment No. 27 effectively states that the Commissioners for Revenue and Customs have to have an audit committee.
The amendment also deals with composition. In the private sector you must have an audit committee composed entirely of independent directors. That position is generally taken in the other legislation for public bodies. But the practice in government departments is different. There is a variety of practice, some involving non-executives and some with a minority of non-executives. Nevertheless, it is important to understand the nature of the involvement of non-executives.
We know from our first Committee sitting and from the Explanatory Notes that the Government expect an audit committee to be created. That is welcome, because it is an absolutely essential part of the proper governance of any organisation. The point about the amendment is that it should be left neither to the discretion of the Commissioners of Revenue and Customs, nor to whether the Treasury chooses to issue corporate governance guidelines for government departments, which it may not ever get around to doing. It is important to set up the new organisation with the essentials of a well functioning body. I beg to move.
Lord Goldsmith: I have listened carefully to the noble Baroness, as I did on Tuesday, and studied her contribution to that debate, as reported in Hansard. I understand that there are a number of concerns where she feels unsighted on how HM Revenue and Customs will operate. I accept entirely that it is legitimate to want a clear picture of the new organisation. I hope that I will be able to reassure the noble Baroness and other noble Lords on those matters. As I indicated on
24 Feb 2005 : Column GC362
Tuesday, I shall write to her and other noble Lords before the next stage with further detailed information covering the proposed organisation and structure.
I shall emphasise one or two important points. First, as I said on Tuesday, unlike Bills setting up non-departmental public bodies, the Bill does not set out the governance arrangements for this department because they are set out elsewhere. There is a significant difference between HM Revenue and Customs and a non-departmental public body in that, because it is a government department, scrutiny arrangements and so on are prescribed elsewhere and, because the commissioners are civil servants, their appointments procedures, pension arrangements and so on are centrally prescribed. When taking those facts into account, the level of detail set out in the Bill is comparable with other non-ministerial departments. I shall make reference to the proposed Charity Commission, the Office of Rail Regulation and the Water Services Regulation Authority. I shall cover that further in my letter. I recognise that no two departments are the same.
Perhaps I may go one stage further and give a little further information about the proposed structure of the new department and where it will be set out for scrutiny. First, it will be set out in the department's spring report, which is planned for publication and to be laid before Parliament within a very short time of the launch of HM Revenue and Customs. But I will send the noble Baroness a copy of the current proposals for those arrangements, which outline the top-level structure, the membership of those structures, especially the management board, in terms of commissioners and non-executive directors, and proposed committees. The department will publish two reports each year—spring report and annual reports—which will set out its top-level corporate governance arrangements.
Those two reports are part of an extensive set of reporting requirements that will apply to HMRC in line with other government departments. External scrutiny on those matters will continue as for the predecessor departments, including external audit by the National Audit Office, reporting to the Public Accounts Committee. I will describe these more in the letter that I hope to send, but they are important points to make.
As to the specific changes the noble Baroness proposes to Clause 12, Amendment No. 27 raises a number of issues. First, it proposes to make provision for the commissioners to establish a committee, which in corporate governance language is called an audit committee. Secondly, it sets out the overall purpose of the committee; that it should review whether internal financial controls secure the proper conduct of its financial affairs. Thirdly, the amendment stipulates the committee's constitution in terms of the numbers of non-executives who should form the majority.
In fact there is very little between us on what will happen. At the moment both the Inland Revenue and HM Customs and Excise have audit committees. HM Revenue and Customs likewise will, from its
24 Feb 2005 : Column GC363
establishment, have such a committee. My right honourable friend the Paymaster General has already made that clear.
Moreover, the Bill makes specific provision in Clause 14(1)(b) for the commissioners to delegate their functions—other than certain specific reserve matters—to a committee established by them and which may include persons who are neither commissioners nor staff nor officers of Revenue and Customs; that is to say, non-executive directors. The Explanatory Notes specifically refer to this as a provision which, for example, allows the setting up of an audit committee. It is a very good example of a use of that power.
Again, as my right honourable friend has made clear, the audit committee will be chaired by a non-executive. Indeed, in line with best practice as laid out in the Combined Code on Corporate Governance in the Treasury's audit committee handbook, the intention is that all the members of the audit committee will be non-executives.
Finally, the amendment sets out the proposed purpose of the committee. I note, however—this is an important point—that this is again one of those areas where there is scope for development and change. For example, audit committees now regularly advise accounting officers on the strategic processes for risk control in governance and the statement on internal control which go wider than the financial accounting matters described by the noble Baroness in the amendment.
I suggested on Tuesday that there is a danger in putting such matters in the Bill rather than leaving them to the sensible arrangements to be imposed because this is a government department. One risks not being able to take account of good, proper, changing practice and experience.
So, in all respects, I hope that I have reassured the noble Baroness that all she seeks will be in place and that there is little between us. Ultimately, I do not consider it necessary to include a specific provision in the Bill. Indeed, I see a positive disadvantage in doing so. That, fundamentally, is why I resist the amendment.
| Next Section | Back to Table of Contents | Lords Hansard Home Page |