Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)




  1. This afternoon the Committee is taking evidence on the Comptroller and Auditor General's Report on the Inland Revenue Appropriation Account 1999-2000. We have a cast of thousands: Mr Nick Montagu, Chairman of the Board of the Inland Revenue, Bill Thomas, Managing Director (UK and Ireland) at EDS, and Elisabeth Astall, Partner at Accenture. Who have I missed?
  (Mr Montagu) You have missed Ann Chant, Chairman, who is Deputy Chairman and Director General in charge of Strategic Service Delivery, and John Yard, whom again the Committee will know, who is Director of Business Services.

  2. Thank you for that. Let me go straight in. You are used to our style so I will start straight off with Part 3 of the C&AG's Report which outlines the difficulties, which led you to clear one million PAYE taxpayer records for 1997-98 without checking that the individuals had paid the right amount of tax. When do you propose to alert the taxpayers affected to the risk that they may have overpaid tax?
  (Mr Montagu) Around June.

  3. After the election?
  (Mr Montagu) You would know that better than I, Chairman.

  4. I was only teasing, as you well know. Let me move on to Ms Astall and Mr Thomas on paragraph 3.12 of the report which suggests that there may have been a communications gap between Accenture and EDS during the development of NIRS2, and this Committee is well aware of previous development problems on that project. How do you now ensure that there is effective liaison on developments which affect your respective systems?
  (Mr Thomas) We have a number of operating mechanisms. The communications problems that are referred to in the report come from a time when EDS were working to the Inland Revenue and Accenture were working to the Contributions Agency. Now we have a single client in the Inland Revenue for our work and we have at least three operating mechanisms that serve to bring us together. We have operating mechanisms where we work under the direction of Mr Yard on joint projects. We also have six weekly strategic meetings between Accenture and EDS to make sure that our operating procedures and our methods dovetail together and we have fortnightly meetings to do the same thing.

  5. Ms Astall, do you have anything to add to that?
  (Ms Astall) I think the only thing I would add is in addition to that we have a series of actual meetings around specific subjects which deal with any day to day difficulties.

  6. So we can look forward to a smooth, sleek and on time development from now on, can we? You are both nodding, good. Mr Montagu, let us come back to you. Paragraph 4.5 is the point in the report I want to pick up on the tax credits. That paragraph notes that the new schemes increased the number of applicants entitled to support, and at the end of February 2000 you were paying tax credits to just over one million applicants. There have been some concerns about take up, so can you tell us what you have been doing to encourage take up and what the latest position is?
  (Mr Montagu) By all means, Chairman. I can update the Committee on the latest number claiming tax credits. The present figure is around 1.2 million recipients. The Government have always spoken of a figure around the 1.4/1.5 million mark. We have had extensive awareness campaigns. Members of the Committee may have seen advertisements on television and so on. We have made sure that local authorities, benefits offices, citizens advice bureaux, anywhere that potential claimants might go, have the necessary packs. We have a very active helpline. In addition, anybody getting Child Benefit will get a reminder at the beginning of the year that they might be able to claim Working Families or Disabled Person's Tax Credits.

  7. Is there any other way of targeting the ones you are missing, identifying the ones you are missing?
  (Mr Montagu) We have probably identified the main sources. I think particularly that the reminder to people claiming Child Benefit is effective, but also that we do consciously join up with the other Government Departments who may be dealing with them, local and central.

  8. Thank you for that. I would like to move on to Part 5 of the report which shows that the construction industry scheme has been successful in identifying new subcontractors and increasing tax by about £280 million in 1999-00. But there were some teething troubles. What lessons have you learned from that scheme?
  (Mr Montagu) I think quite a few. As the Comptroller and Auditor General notes, there are, as you have pointed out, Chairman, successes in terms of 100,000 people coming onto our books and in terms of the £280 million extra tax revenue. But, as Sir John also recognises, the construction industry has certain peculiar characteristics. It is a very volatile industry, it is an industry with whom there have in the past been compliance problems. I think we, possibly being over-neat and tidy bureaucrats in our mind, sometimes expect our customers all to be similarly so. What I am saying is I do not think we fully understood the nature of customers we were dealing with. I think we could have done more to test forms and guidance on them at an early stage. I think we could have improved our internal and external communications strategy. I had heard that one office, admittedly an office with relatively few number of subcontractors, our Kirkcaldy office, had been particularly successful, so I went up and talked to the two young men there who had actually spearheaded the publicity for the scheme. They had adopted a saturation approach, they did not wait for people to come into the office, they had built on their local contacts that they had built up through Chartermark, they had gone out and talked to the subbies, they had gone out at weekends to places which suited them. There are lessons for us there in a more active understanding of an approach to our customers.

  9. I think others will be interested in that. I will press on for the moment to Part 6 of the report which notes the steps you have taken to improve your employer compliance reviews following our hearing in 1997. Yet figure 14 on page R39 and figure 15 on R40 show increased variations between detection rates across local offices and a significant drop in yield from compliance activity. What are the reasons behind these trends and what are you doing to address them?
  (Mr Montagu) The variation is a worry, and I will come back to that if I may. The straight answer on yield is that we were committed to delivering really major changes, like tax credits, and in particular where employer compliance is concerned the successful merger a couple of years ago of the Contributions Agency in the Inland Revenue. In addition, that was the year in which we were bringing in our new IT infrastructure, rolling out 50,000 new desktops, which was the biggest roll-out of its kind in Europe. We had, I think rightly, to concentrate management time on these priorities and so, inevitably, other areas of work, which included employer compliance, took a lower priority. Our yield from employer compliance work did increase in 1999-00 and again in 2000-01. I think these are significant achievements, particularly as the pressures continue. Variation between offices has always been a worry, and this may be something that Ann will want to add to. We are doing a number of things. We have got, I think, our employer compliance effort well integrated and working together. In other words, the merger with the Contributions Agency has bedded in successfully. Also, each office now has, as part of its compliance unit, people who are specialists in looking at risk, risk research essentially, to improve our targeting. Also, from this year we have introduced other risk specialists who are able to look at compliance across the piece. My answer to "what can you do to reduce the variations" is, one, monitor pretty ruthlessly and make sure that you bring up the worst to the best, if I can use that rather crude term. Part of that is sharing best practice, and I think we are getting better at that and having research specialists and risk specialists helps with that. The third is always going to be improve our targeting. Again, the risk and research and bringing together the expertise of the Contributions Agency and the Revenue all point to that end. Ann, do you want to add to that?
  (Miss Chant) A little but not—

  10. Before you do, Ann, the last time we raised this with you the nub of your reply was that the variation was to a very large extent driven by the different populations of customers, if that is the right word, that you had, large numbers of PAYE in one area, large numbers of self-employed in others, and that created a different perspective. Are you not likely to face problems of measurement, problems of actually assessing what a unit ought to be able to achieve against that variation?
  (Mr Montagu) I am sorry, Chairman, we may have been at cross purposes. I had not realised that you were talking about variation in yield. I was talking about variation in quality, which is one of the things which worries me. Again, since I last appeared, we have refined our quality monitoring. We have kept our compliance quality initiative, which I discussed with the Committee before. We have refined our quality monitoring techniques and it was that that I was speaking to in talking about reducing the gaps. Where yield is concerned, yes, you are absolutely right. If you have got different tax districts dealing with different populations one needs to have, and again risk and research helps in this, a better understanding of what one might reasonably expect to bring in. I phrase it in that rather careful way deliberately because the Committee knows from our previous discussions I am against the idea of yield targets. I am strongly in favour of the idea of having a good understanding of what you ought to expect and a rigorous examination of any failure to meet those expectations.

  11. Have you anything to add to that, Miss Chant?
  (Miss Chant) A little. To begin with, trying to cover both points, whether it is yield or whether it is quality, we now have our local office network organised into 64 areas covering the UK. Each of those has a standardised set-up on employer compliance work and, therefore, we have 64 points only to start bringing together to make comparisons, to spread best practice. We do have, as Mr Montagu said, our risk and research teams much more centralised and expertly led from the centre on the risk and research basis method of selection. We are helping our staff become more expert at using our employer compliance system and there is, indeed, now already some indication that the variation is narrowing. There always will be—the point that you made—that a different area is likely to have a different clientele but I am not convinced yet that we have got that to the irreducible minimum, although we are certainly getting there.

  12. Thank you for that. Let me move on to paragraph 6.5. In addition to PAYE and national insurance, employers now have to comply with legislation on tax credits, the collection of student loan repayments and the national minimum wage. The paragraph notes that the number of employer compliance staff has reduced. In these circumstances, what assurance can you give us that you can police all these schemes effectively?
  (Mr Montagu) I think that we can give you that assurance. We have reduced the number of employer compliance staff to reflect the fact that we have merged with the Contributions Agency and obviously there were a number of purposes behind that merger. One was the deregulatory one, so there was only one set of heavy boots going over the books rather than two. Another was to achieve genuine efficiencies, and we have done so, which accounts for the overall reduction in staff. I think it is extremely important, and it is going to become increasingly so in the context of the Revenue's aspiration to be an enabling as well as a regulating department, that one looks at compliance in a very wide sense as part of a spectrum. I think I have probably said before now that in the best of all possible worlds our compliance yield would be zero because everybody would be paying up, voluntarily getting it right, without enforcement activity. Since I last discussed employer compliance with this Committee we have expanded enormously our business support function. We work closely with the Small Business Service, we have our New Employers Support Initiative, we have our Business Support Teams, we have a range of helplines. If I can give an example.

  13. Briefly.
  (Mr Montagu) Very briefly. We recently had dealings with a large employer who came to us and said "look, I want to do things in this way, what are the implications?", we helped him, we sorted it. As a result, he complied. That is not, in the sense of this report, employer compliance but I think it would be mistaken wholly to divorce it from it.

  14. Thank you very much. Your comment on heavy boots brings me to my last question. You may recall that during the consideration of the Tax Credits Bill, I raised the question of the C&AG's access to employers to check tax credit payments made on behalf of the Department. The Paymaster General thought that this would be inappropriate and suggested that assurance could be drawn from the Department's own checks instead. In view of the concerns about the staffing and quality of employer compliance work, will you be able to provide the C&AG with sufficient assurance about the employers' operation of the tax credit scheme during 2000-01?
  (Mr Montagu) I think we will, Chairman. We have done a lot, both on employer compliance and also in bringing together the overall management of the tax credit scheme in a coherent way. Our local districts work closely with the Tax Credits Office. Both of them come under Ann's general direction. Our employer compliance people are familiar with the tax credit rules, they will be looking at the operation of the tax credit rules and employers will bring together all their, if I may put it that way, Inland Revenue duties in single documentation at the end of the year. My understanding is that the C&AG will be looking closely at the way in which we operate and police the scheme and obviously if he takes the view that there are shortcomings, this is something that I would want as a matter of some importance to discuss with him.

  15. You can be sure the Committee will be looking closely too.
  (Miss Chant) Could I just add very briefly to that, Chairman. We have introduced employer compliance for tax credits on a risk based system into our employer compliance work and, of course, at the end of every year employers will submit, broadly speaking, what they have paid which we will compare with what has been authorised. So there should be a neat bringing together at the end their annual returns with what we have authorised for tax credit payment.

  16. My problem is that I just wonder whether the information is good enough for the system to be completely closed. To give you one example: an argument by Frank Field of scope for employer/employee collusion over this issue is a serious issue with this system. I will be looking very hard to see whether your system covers that.
  (Miss Chant) A risk based employer compliance system should definitely pick that up and we will keep it under review.

  Chairman: Thank you. David Rendel?

Mr Rendel

  17. Thank you, Chairman. I want to start, if I may, with some naive questions about the PAYE system. The report tells us that 20 million employees are covered only by PAYE and do not have to send in their own self-assessment forms each year. How many are taxed under self-assessment?
  (Mr Montagu) About 9.5 million people complete self-assessment forms.

  18. Can you remind me what the criteria are for making people fill in self-assessment forms?
  (Mr Montagu) Obviously there is a range of criteria, Mr Rendel. The major ones that are of interest are self-employment, higher rate taxpayers or significant sources of additional income not covered by the PAYE system.

  19. What is a "significant source"?
  (Mr Montagu) It could be almost anything.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 20 August 2001