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Baroness Noakes: My Lords, throughout our consideration of the Bill we have raised concerns about how the new HMRC will operate—in particular, whether the Inland Revenue's approach, which might be characterised as "business-friendly", certainly in comparison with Customs and Excise, will be preserved in the new organisation.
The integration's impact on taxpayers has never fully been explained.We believe that the thoughts that lie behind my noble friend's amendments are very sound. I am less clear that the form of the amendment captures what we need, but I freely accept that my legal knowledge is way below that of my noble friend, so I shall be interested to hear the debate on his amendment.
The Attorney-General (Lord Goldsmith): My Lords, I oppose the amendment of the noble Lord, Lord Campbell of Alloway, both in principle and in detail. I suggest—the noble Baroness, Lady Noakes, has anticipated what I might say—that the amendment is defective. However, if it were rewritten to achieve what I believe to be the noble Lord's aim, it would in fact prevent the new department doing exactly what the O'Donnell review recommended it should do, which I have understood up to now has been widely supported.
I shall examine what the amendment provides. It refers to,
As I understand it, from what the noble Lord has said, he wants to preserve what he regards as the lighter touch that folklore has it the Revenue provides, compared with that of the draconian Customs and Excise.
I want to make three points. First, I want to challenge the assumption on which the noble Lord puts forward that proposition; secondly, I want to point out why the amendment is defective; and, thirdly, I want to come back to why this would defeat the object of the Bill. Indeed, I would go so far as to say that if it achieved what I believe the noble Lord wants to achieve, it would wreck what is proposed in the Bill. I hope your Lordships would not want to see that.
As far as the assumptions are concerned, it is wrong to characterise Revenue powers as soft and Customs powers as draconian. Customs and Excise has some powers to act rapidly, powers that are appropriate to it because of its duty to prevent smuggling and illegal importations, but which would not be appropriate for certain functions carried out by the Revenue. I have talked before about the ring-fencing of powers, and the powers used would be appropriate to the function being carried out.
Secondly, I do not think it is right to characterise the two departments as having contrasting cultures. Difference of approach can be found within the organisations. Those who have had dealings with them
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would probably agree that the approach of the Special Compliance Office of the Inland Revenue, which deals with serious tax fraud, is different from that of officers in the child benefit office or the tax credit office. That flows from the nature of the functions they are carrying out.
Surely the key point here is not the variations people perceive in the present departments, but the powers that are appropriate to the functions they are carrying out. Noble Lords who have participated in the passage of this Bill so far know that a review of those powers started last week. It has been referred to throughout the passage of the Bill here and in another place and will ensure ultimately that the powers that are available are appropriate to the functions.
Culture is very much in the eye of the beholder. I was struck by the fact that, at one stage in our debate, there seemed to be a difference of view between noble Lords as to which was the softer touch, Revenue or Customs. The noble Lord, Lord Newby, who had experience from having worked in Customs and Excise, took a different view on that from the noble Baroness, Lady Noakes, who had lots of experience of dealing with it professionally as the Inland Revenue across the table. I am told, however, that only last week my right honourable friend the Chancellor of the Exchequer received a representation pleading for the Inland Revenue to be more like Customs and Excise.
Thirdly, the management of the new department is there to ensure that the overarching culture of the department is built on the soundest traditions of public service of the predecessor departments. That is a serious point. We have previously agreed that what is most important in the culture of both departments, which they share, is honesty and integrity. Plainly, that will continue.
I have just been handed a note, which I had previously seen, saying that the review had started last week. Either I misread it or it is incorrect, but, in any event, I ask noble Lords to ignore what I said about the review having started last week. It has not.
Regarding the technical defects, with respect, I do not see how the words used by the noble Lord capture what he is trying to enact as the sense of current Inland Revenue practice. It is not possible to prescribe culture by words in legislation. There is no detail, if I may be permitted respectfully to say so, in the amendment on how the culture of the Revenue is to be preserved. The amendment just states:
The only way this could be achieved in practice would be by retaining separate management chains for the functions that were inherited from each of the old departments. That would prevent the collaborative working and integration that this Bill is all about.
I suppose that what the noble Lord means by the word "independence" is exactly that. While there would be integration, the Revenue should remain independent. That is directly contrary to the whole thrust and purpose of the Bill, which has been widely supported, including by the noble Baroness, Lady Noakes, the noble Lord,
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Lord Newby, the noble Lord, Lord Thomas, and many others. To enact something effective—which, with respect, this amendment is not—to keep the Revenue separate would defeat the object of the Bill.
I hope that all noble Lords will agree that the integration or, if one prefers, the merger—we have debated which word is appropriate—should deliver among other things a better and more flexible use of resources, a more focused approach to compliance throughout the taxation system and improvements to customer service and compliance costs. None of that will be possible if the functions inherited from the Inland Revenue are to be kept in some sort of isolation tank.
Although I am grateful, as always, to the noble Lord for the thought and care with which he moved his amendment, I am afraid that I cannot accept it, and I urge your Lordships to reject it, should the noble Lord wish to press it.
4.30 p.m.
Lord Sheldon: My Lords, I rise briefly to point out one or two of the problems that we are going to see, as I understand it, as a result of the two bodies coming together—
Baroness Farrington of Ribbleton: My Lords, I apologise to my noble friend for intervening, but once a Minister has sat down on Report, there can be no speaker other than the mover of the amendment.
Lord Sheldon: My Lords, before my noble and learned friend sits down, I have just one or two points to make. The coming together of the two departments will create some problems, and the safeguards that are going to be required are obvious.
Will my noble and learned friend take account of the fact that the Inland Revenue has a lighter touch because it deals with matters in the past and has time to consider them, whereas Customs and Excise is dealing with something that can disappear? Once goods have been smuggled in, it is difficult to get hold of them subsequently. The Inland Revenue has a lighter touch. Will my noble and learned friend take account of the fact that, when the two departments come together—I agree that they need to do so—there will be a danger in the speed with which they come together? Will my noble and learned friend take account also of the fact that we will need time to take those matters forward to preserve the honesty and integrity that he mentioned?
Lord Goldsmith: My Lords, I have been patient in listening because it may be that I stood up too quickly and the noble Lord intended to speak before I spoke. In any event, I can deal very briefly with his points.
On the first, as I have said, what matters is the function for which the power is exercised. The noble Lord is of course right that when you are dealing with a matter of importation or smuggling, you may have to act quickly, and acting quickly often needs a power that is forceful and robust, whereas if you are dealing with matters after
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the event, you may be able to take a more leisurely approach. That can apply just as much to a Revenue function as to a Customs function, where customs is dealing with something other than importation. We should not try to divide rigidly any of those approaches, but recognise that what matters is the functions and the powers that are appropriate to them.
On the noble Lord's second point, I have repeatedly said in this debate that we entirely recognise that care must be taken, and great thought be given, to the way in which the integration takes place. That is apparent in the workings of the report of Mr Gus O'Donnell that preceded the Bill and in all the other things that I have said about how we propose to go forward and effect the merger.
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