Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



  40. The significance of the case that I was referring to was that it did sponsor the Butler report and the Butler report, from its findings, did result in this question of whether the prosecuting powers should be retained by Customs and Excise, so there were some significant things arising from that. What factors, when you consider the report, will you be taking into account in deciding whether the prosecuting powers should be retained by Customs and Excise or not?
  (Dawn Primarolo) The Attorney General will decide that and that is what the report is about.

  41. The Attorney General will decide?
  (Dawn Primarolo) Absolutely, yes. Customs in terms of both of those reports were exonerated but obviously the issue of whether it was correct to have the prosecuting authority within the same department was a particular focus. That was then taken out to a review that then looked at both of the inquiries. That review was appointed by and reports to the Attorney General. Obviously they would have sought information from Customs in the progress of that. The Attorney General will take a final decision on what is best, whether it remains or goes somewhere else.

  42. Will that take into account the relative conviction rate of the present team compared with other prosecuting authorities?
  (Dawn Primarolo) I presume so. I presume it will take everything into account, yes. This is a review being done on us, so other people will decide these things.

Judy Mallaber

  43. Can we move on to the Inland Revenue and particularly its changing role as a result of legislation over the last few years. How well do you think the Inland Revenue has coped with the changes to its remit introduced since 1997? I am particularly thinking of things like the introduction of tax credits and enforcement of the minimum wage.
  (Dawn Primarolo) I think that the Inland Revenue, which has had a huge change, both with the development of tax credits, with the Contribution Agency moving in, has coped extremely well and it has met all of its performance targets set by the Public Service Agreement. At the same time, the cost of collecting, price per pound, has gone down. It has dropped to 1.1p per pound collected. Across the board, whether it be telephone calls or letters, the mobile advice centres or the customer service performance, the complaints, what has been done on tax credits, minimum wage enforcement, it has done a fantastic job and I think that is generally recognised, how well the department has coped. That is obviously not to conceal the fact that there have been particular issues around IT.

  44. What do you think have been the particular challenges as a result of the legislation?
  (Dawn Primarolo) They are all significant challenges. Perhaps you should ask my officials which they thought were the worst. I should imagine that the movement of the Contribution Agency into the Inland Revenue, the moving of the staff, the management of that, the bringing of the Contribution Agency into the systems of the Inland Revenue, was a huge issue, and clearly the movement of tax credits as we took the tax credits in and developed them on. I think the biggest challenge for Inland Revenue is one of culture, that they have to move, and are moving, to be a department that has, if I can put it this way, social responsibilities. They are the lead department for the payment of the tax credits, the monitoring of the national minimum wage, as well as their functions as a tax collecting department that also has compliance responsibilities. Customs and Excise have to do the same but Inland Revenue have to do it much more, which is to balance now a sort of enabling, facilitating role with, if you like, an enforcement role, a collection role. Although there have been management changes to bring in more staff, actually changing those attitudes and how the department operates is a huge challenge.

  45. What work has been done, for example, to enable the staff to deal with handling a rather different client base from its traditional areas of work? What particular things have you put in place to assist staff to deal with that and to make that culture change?
  (Dawn Primarolo) Clearly with the Contribution Agency the staff moved. With the tax credits some staff moved and we recruited further staff. What we have done through the department is to ensure that we have training and support in the department to move people to those functions. I have to say as well that the staff in the Inland Revenue are used to dealing with people and it is nice for them. They have a more diverse role and they are very excited about that and very keen to feed into the department's strategies for training and support of staff to take on those different roles that they now fulfil.

  46. Are you getting a universally positive approach to that? I have just moved over from the Employment Committee to this Committee and we have been pleasantly surprised by the way the Employment Service has adapted its role to deal with a similar change in what they are meant to be doing. Are you saying to us that this is a success and that the Inland Revenue staff are fully on board?
  (Dawn Primarolo) Yes, I would say that it is a success and I would say that the staff are on board. I would not want to say that the staff, in representing their views on what they feel is best for them, would not have other objectives. If you wanted it to be arranged we could certainly give you access to the sorts of things that have been going on, you could speak to our staff. We could arrange a visit for you so you can see in detail what we have done both with our tax credits and with the Contribution Agency, as an example, and with the national minimum wage enforcement unit, which I think has done a brilliant job and has worked very well indeed.

  47. What have been the difficulties? What has not gone right? You obviously mentioned the IT.
  (Dawn Primarolo) The Inland Revenue has a huge IT system, I think it is in the top one per cent of IT users in Europe, and we need that IT to be user friendly for our staff as well as to be able to give the information. Obviously there have been pressures on staff in terms of deadlines to accommodate this change and the changes that have gone on and that has been very intense at different times. All of the staff in the Revenue have responded incredibly positively because they are committed to making sure that they give the very best service. Even on measuring, for instance, the level of complaints coming into the department and the percentage of complaints that go into the formal procedure and then to the adjudicator, we see a declining rate. Touch wood, we have moved away from the horrendous headlines in the late 1990s, 1997-98, that we were getting about staff, whether they were unfriendly or abusive or unhelpful, because they have improved so much on the customer service.

  48. How can you continue to ensure that the Inland Revenue's traditional work, such as getting in the money from income tax, which they need to be able to do as well as everything else, is not overlooked in the rush to embrace tax credits and the culture change and everything else?
  (Dawn Primarolo) It will not be overlooked. It is £195.6 billion to overlook. Although our staff are very keen, particularly those who are specifically engaged in the tax credits, the Contribution Agency, in making the important contribution, all of the staff in the Inland Revenue, I think it would be fair to say, view their role as to collect the right amount of tax, and only the right amount of tax, in an efficient and fair way so that Parliament can take the decisions on how it wishes to spend that money on its public services. It is very difficult to convey strongly enough how the staff in both the tax departments see their crucial role in that wider picture of securing fairly the resources that are then allocated by Parliament to our public services.

  49. How do you expect the Inland Revenue to evolve over the next few years? Where do you see it in another four years' time?
  (Dawn Primarolo) I think they probably wish "more slowly". I think we need to go into a period of consolidation. For instance, the Contributions Agency's IT system will be within I2K by August of this year, the tax credits by the following year. We could not do it any faster than that because of resources and priorities elsewhere. So we will have the integration there. The partnerships and the closer working with Customs clearly over the next year will develop and bed down, and I certainly think that all of us see now that the Inland Revenue needs to consolidate the changes it has already made and bed them in well, and that will be our priority. How could I describe what I would like? What I would like is that somebody rings up a local tax office and at the end of the conversation we have got to a position where we can say to that individual, "Would you like me to check whether you have paid too much tax and we need to give some back to you?" I would like that conversation for two reasons: one, that we were able to do it; and, two, so that the taxpayer would not feel reluctant, as sometimes they are, to engage in that but confident that the Revenue is only seeking the tax level that is necessary and if there is too much which has been inadvertently given, we would give it back.

  50. My local tax office has won plaudits for its outreach work, so there are lots of good stories.
  (Dawn Primarolo) Absolutely, and they have done very well on Charter Marks. When we had the Tax Back Campaign, just as an example, we gave the challenge to our offices that they were responsible for getting the local publicity and I was stunned, amazed, at the imagination and diversity of what they did. There were tax inspectors busking in shopping centres—I hasten to say not because we do not pay them enough but because they wanted to get their message across in a different way—there was a huge range of things they were doing in their local communities, and I think that is something we want to build on. We have quite a way to go before we get to the user-friendly, softly, cuddly Inland Revenue.

  51. I know you said you wanted to have stability but do you think there is a need to look fundamentally at the boundary between tax and the benefits system?
  (Dawn Primarolo) The Government is actively looking at that. The development of the next generation of tax credits and reforms we have undertaken to date are exactly about addressing the boundaries and taking away the cliff edges or the problems which were building up in the system, and that will not stop.

Mr Cousins

  52. I will certainly treat buskers with more respect if I think they are tax inspectors in disguise.
  (Dawn Primarolo) You will give them some money, will you!

  53. There was a review of the Inland Revenue's policy work which was carried out last autumn and published just before Christmas, and one of its conclusions was that it was difficult to identify anyone in the structure of the Inland Revenue who has the background and capacity to think about the tax system as a whole. That is a fairly heavy criticism. How are you going to respond to that review and improve the revenue departments work on tax policy?
  (Dawn Primarolo) Firstly, clearly when looking at the Treasury Departments and the issue of policy we would not see the Inland Revenue as free-standing in future planning because clearly the Treasury itself has a role in that. What Revenue has done, and the report sees, is made a real improvement in strengthening its policy function and in particular to have dedicated quality staff who have the depth of knowledge on particular subjects and therefore can assist in the effective implementation of policy as well. The review team did give the Inland Revenue credit for its expertise, for its professionalism, for its integrity and for the development of things like the tax credits which shows its capacity to do that. What we have done in addition is that Mr Hartnett has the role of ensuring the co-ordination of work that is being developed in Revenue and that it has that focus, because I think the peer review was questioning not only that it was not going on but that the depth and the focus needed to be directed, and that is what is being undertaken now. In particular, the review referred to the need for developing staff and recruiting staff who would assist much more in evidence-based information and research, the modelling that is necessary, and again that is being addressed. I do not know whether I could commit Mr Hartnett to do a short note for you on the changes which are being developed to address these issues?

  54. Yes, that would be useful.
  (Mr Hartnett) Yes.

  55. The review did discover there was no business taxation model. Is that being done?
  (Dawn Primarolo) Yes.

  56. Is it fair to say that some of the difficulties that the Government got itself involved in, like how you deal with taxing insurance companies' reserves or stock options in small e-economy companies, might have been avoided if there had been better and more coherent tax policy advice within the Revenue?
  (Dawn Primarolo) On your first question, yes, it is being addressed. On your second question, I doubt it. Ensuring that everybody is always at one with the Inland Revenue is difficult. We are in a changing world and it is changing very rapidly and we collect information, but I have had some salutary lessons as a minister on questions of consultation. When I tried to address it on the basis, "We have a problem here and it is a big problem, how do you think we might deal with this?", I was criticised for doing an inadequate consultation process and people wanted specifics. Then, of course, when we do specifics, people complain it is all cut and dried. I think the relationship not only of Inland Revenue internally in having that policy capacity but, most important, the dialogues with the representative bodies outside representing taxpayers, is something we have strengthened and continue to strengthen, so we have both our own views and information about how we see the tax system moving—if you like as tax collectors what we see the issues are—and also the experience of those businesses in terms of what would or would not work for them. That is never a perfect exercise but we have to strive to constantly improve it.

  57. Yes, but the lack of a business taxation model points to difficulties between the Inland Revenue and the Treasury. I take your point about consultation outside, but there is a distinct feeling if you read that peer review report that all is not well about the exchange of proper advice between the Inland Revenue and the Treasury. There are mistakes which have been made which could have been avoided.
  (Dawn Primarolo) To be honest, I did not read the remarks quite as critically as that. Yes, the business model needs to be developed.

  58. Needs to be developed?
  (Dawn Primarolo) Absolutely, and is being addressed. Yes, of course, there always needs to be the exchange of proper and relevant information between government departments, not just within the Treasury departments, when issues are being developed, but I thought the peer review was saying, "These are the things you need to specifically address", which we have. It also said, "There are things you have done very well and things that you have not done so well, concentrate on what you have not done so well, learn the lessons and put it right." The idea of peer reviews is not to be antagonistic, and the Revenue accepted entirely what was said and are acting on it.

  59. Judy Mallaber mentioned the ever present problem of computing. Just to briefly come to that, can you bring the Committee up to date with how many cases will be closed from 1998-99?
  (Dawn Primarolo) As the clock was ticking by, I could not believe I might get through an entire hearing without referring to that. The original figures were reported to you by Nick Montagu. The figure now is 1.7 million where we have incomplete information and which we are working on. As Nick Montagu agreed with this Committee on working through them on an individual basis, we are hopeful and expect that the 1998-99 figures will be considerably reduced and will report to you at the end of the year where we are.

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