THURSDAY 8 FEBRUARY 2001
                               _________
  
                           Members present:
              Sir Michael Spicer, in the Chair
              Mr Nigel Beard
              Mr Jim Cousins
              Judy Mallaber
  
                               _________
                                   
                 DAWN PRIMAROLO, a Member of the House, (Paymaster General), MR MIKE
           HANSON, Director, Finance and Strategy, HM Customs and Excise, MR
           TERRY BYRNE, Director, Enforcement, HM Customs and Excise, MS SUE
           PITHER, Personal Assistant to Stephen Banyard, Director, Business
           Operations, Inland Revenue, and MR DAVE HARTNETT, Director General,
           Inland Revenue, examined.
  
                               Chairman
        1.    Minister, I apologise for being late.  We will certainly not
  protract the proceedings beyond a quarter to twelve.
        (Dawn Primarolo)           Sir Michael, before you start, could I also apologise
  for the problems over the original date for this meeting.  I know my office
  spoke to you.  There was confusion.  I was actually on my way to Brussels, I
  had to go to Brussels for a meeting.  I do apologise for any inconvenience
  this may have caused the Committee and to you.  It will not happen again.  I
  will be much more thorough in making sure that provisional dates stay in and
  we do not allow anything else.
        2.    Thank you very much.  We were certainly told by your office that
  you love coming here too much to try to avoid us.
        (Dawn Primarolo)           I do not think I would go that far but we will give
  it a whirl, shall we?
        3.    Can we start straight away with the issue we have been in
  correspondence about, the Rocques report.  Could you say what deadlines have
  been set for the final version of the Rocques report to be reported publicly?
        (Dawn Primarolo)           I have not set a specific deadline in terms of date. 
  What I do have is an urgency to ensure that the outstanding questions - how
  much was lost between 1994-98, how it was lost, why it was lost, what has been
  done to ensure that never happens again - and any other lessons that need to
  be addressed are done as speedily as possible.  That information at all times,
  of course, has to be shared with the National Audit Office.  I want to be in
  a position to inform Parliament and yourselves as quickly as I can on the
  outcomes and if there is any further action necessary for Customs, what that
  will be.
        4.    Minister, the trouble with that response is that in your letter
  to me you said, if I can just read out the appropriate piece of it: "Customs
  tell me that although the basic facts", which is what you have been just
  talking about "have been established there is more work to be done before firm
  conclusions can be reached. Customs will therefore be asking John Rocques to
  carry out further analysis to complete his work as soon as possible".  The
  facts seem to be clear, what seem to be now in question and possibly needing
  further doctoring are the conclusions.  That does not quite match up with the
  answer that you gave me first of all.
        (Dawn Primarolo)           I think we have discussed before, explaining to the
  Committee, this is about diversion fraud from our warehouses.  It happened,
  as I tried to explain before, Customs knew it was happening and it was in the
  pursuit of evidence for prosecutions.  This is a very complex area.  The
  discussions with Mr Rocques, as I understand it between Customs and himself,
  are specifically in relation to some of the issues in that.  I think it would
  be inappropriate to gradually release information.  I think that what
  Parliament will want to see is a full statement and a reassurance that it has
  been stopped, it will not happen again, and what measures are in place to
  ensure that.  That is what we are settling on.  Of course, as I have said, all
  of the information is available, and has to continue to be available, to the
  NAO on the basis that they need to be kept informed because of the amount of
  revenue.
        5.    Do you think it is right that Customs should have the apparent
  right to reject the initial findings of an independent investigation such as
  this one?
        (Dawn Primarolo)           Sir Michael, this is not about rejecting findings,
  this is about ascertaining the facts and the necessary steps thereafter.  I
  would like to assure the Committee that this is not about saying that the
  report has not looked at some very complex areas and needs to, as I said
  before to the Committee, covering areas like the role of the National
  Investigation Service, the cases that were subsequently developed.  Sir
  Michael, I really can assure you personally that I am not trying to conceal
  anything from the Committee or do anything that would not be proper.  I am in
  some difficulty without having the full conclusions and in a sensitive area
  it is unwise for me to speculate.  I am absolutely of the view that I am happy
  to keep you informed, and the Committee informed, and I will be available for
  questioning as soon as there is more information in the public domain for
  that.
        6.    I am not trying to be clever about this but your letter
  specifically says that the facts have already been ascertained and it is the
  conclusions that need further work on.
        (Dawn Primarolo)           The facts are with regard to the revenue lost and the
  fact, again as I tried to explain when I had the opportunity to speak to you,
  that it happened with Customs watching it.   This is quite difficult to get
  across, why exactly that happened and how it happened.  It is not as if they
  did not know that it was going on.  Those are the issues that I certainly want
  to bottom out.  As you know, the reason I appointed Mr Rocques and established
  the independent inquiry was notwithstanding the fact that Customs had already
  undertaken an internal inquiry.  My view is that we must leave no stone
  unturned, and I am still of that view.  At the end of this we need to be able
  to draw a line and move forward.
        7.    Were you concerned that Mr Rocques said in the Financial Times
  last Monday that he felt the report should be published immediately?
        (Dawn Primarolo)           I have not spoken to Mr Rocques and I do not know the
  source of the story that was in the Financial Times, although naturally I took
  note of it.  I think it is probably best that I deal with the facts of it. 
  As I have said before, and Members of the Committee may have some sympathy for
  this, what I will need to make sure is all the questions are answered, and
  answered clearly, on the outstanding items, and that is what I am doing now,
  or Customs are doing now.
        8.    Minister, you must have some idea in your own mind when it would
  be appropriate for this to be published?  Are you saying, at least internally,
  "I want it by such and such a date and no longer"?  Is there pressure coming
  from your office on this?
        (Dawn Primarolo)           Yes, I would like it sorted.  I think that I, on
  behalf of Parliament, owe an explanation and that must be properly presented. 
  If it was over a period of time when I was a Minister it may be a little
  easier but Mr Rocques is actually scrutinising a period from 1994 to early
  1998, of which I have only been the Minister for six months.  There is a great
  deal that needs to be sorted in that period.
        9.    Can you give us some indication when you think that it really
  ought to be out by?
        (Dawn Primarolo)           I cannot give you an indication.  I would not want to
  set a date.  As I have said, I think that we need to have these answers on the
  public record as soon as possible.
        Chairman:   Thank you.  Jim Cousins.
  
                              Mr Cousins
        10.      I find that exchange extremely helpful and I do understand the
  difficulties of the position that you have here today.  Do you feel now that
  the question of the revenue loss involved in this has now finally been
  bottomed out?
        (Dawn Primarolo)           Mr Cousins, this is a matter for the NAO as well.  I
  am not in a position to be able to speak for the National Audit Office or
  comment on their views at this time, but naturally there has been wild
  speculation about the actual loss.  From my point of view it is important that
  we make sure it is all agreed and made public, the actual loss, how it
  occurred, why it occurred, whether it has been stopped - Mr Rocques would have
  come back to me during the course of his inquiry if it had not - but also what
  we need to do to make sure this type of failure does not happen again. 
  Forgive me, but there are some issues around the National Audit Office which
  I am not able to address to you but hopefully that situation will be
  clarified.
        11.      I think I am following you.
        (Dawn Primarolo)           I am sorry, I am just not able to be more specific.
        12.      I do not intend to press you unduly for the actual figure, that
  clearly would be wrong, but just so we are clear about this, your last remarks
  do not in any way imply that there is a disagreement between the NAO and
  yourselves about the actual extent of the loss?
        (Dawn Primarolo)           No, we do not have disagreements with the NAO.  The
  NAO's role is absolutely clear and independent here, it is not negotiable. 
  It is a matter for them because, again as I have explained before, this is a
  loss that occurred over a number of years that has not been accounted for
  properly to Parliament and, therefore, the procedure needs to be gone through
  with the NAO to make sure that is now properly accounted for and that is their
  responsibility.
        13.      The press release you issued when the inquiry was first set up
  made it clear that it came after an internal Customs and Excise assessment
  which was asked for by the new Chair of Customs and Excise, Mr Richard
  Broadbent.  The press release does refer to "significant revenue losses" which
  Customs had presumably identified at that stage before the inquiry.  I think
  it is appropriate to ask you are the figures that were under discussion then
  and the figures that are under discussion now of a piece or are they
  significantly different?
        (Dawn Primarolo)           I am just taking advice that we are not compromising
  NAO's position.  The figure is approximately the same, if a little lower.  I
  am sorry, I cannot be more specific than that.
        14.      That is fine.
        (Dawn Primarolo)           It is still a very, very significant sum.
        15.      A very, very significant sum?
        (Dawn Primarolo)           Yes, and now you are going to ask me what a
  significant sum is and I would wish I had not said that.  I think the adage
  is when in a hole stop digging, and I think I should.  This is a matter for
  the NAO.  The internal report in terms of the possible scale of the loss is
  of the same order as that which has now been established is my understanding
  and that is a matter that the NAO will account for.
        16.      Chairman, when the Paymaster General looks at me like that and
  says it is a very, very significant sum, I worry about the two bottles of
  Galliano I bought in Rome Airport.
        (Dawn Primarolo)           Two.  Not litres?
        17.      Not litres.
        (Dawn Primarolo)           That will take you some time to drink.
        18.      Clearly this inquiry was to some degree triggered by Mr
  Broadbent's own enquiries into these issues.  It was something that was
  generated from within Customs and Excise by an examination that the new Chair
  of Customs and Excise carried out.  That, of course, is very important, but
  can you tell the Committee what other specific changes and improvements Mr
  Broadbent has brought about?
        (Dawn Primarolo)           This moves us more into the discussions about the
  restructuring of the department.
        19.      Yes.
        (Dawn Primarolo)           It ties in with other agendas to do with Closer
  Working as well.  I think it was on 17 January that Customs announced a major
  restructuring.  The restructuring of Customs now is to divide it into two main
  business streams.  The first is the business service and tax element, which
  comprises of all business tax and the facilitation of information of Customs,
  the international movements of trade services, etc, and that has a business
  focus and accounts for approximately 13,000 of our staff and their focus is
  on that.  Naturally what we are seeking to do here is to deliver a service
  that is an improvement for the taxpayer, for the customer, improve compliance
  and make sure that the management through the organisation is properly focused
  on delivering those objectives.  It is in two divisions now.  The second
  division is the law enforcement and that comprises of all investigation,
  intelligence and detection activities.  That would be all the drugs,
  smuggling, firearms, all the investigation service.  That comprises of
  approximately 8,000 of our staff.  There is a very small, and I cannot give
  you the number of staff because it is very small, logistics, finance, human
  resources, legal section.  What Mr Broadbent and his new management team have
  done is considerably reduce what was the head office function.  The head
  office function is basically the support for the Chairman and his team.  The
  parliamentary unit and all other policy development is integrated into those
  two divisions which then, obviously, facilitate Closer Working, whether it be
  the enforcement side with other agencies, the police, Interpol, other
  intelligence agencies, and on the business side the Closer Working Framework
  that is being developed and focused on with Inland Revenue.  Collections have
  gone, it is much more a focused delivery of a business service.
        20.      Are you expecting any job losses as a result of this?
        (Dawn Primarolo)           No.  There are no job losses.  There is some
  reallocation.  Obviously all of this has been negotiated with the employees. 
  The unions and all the employees in the organisation have been fully
  consulted.  I am not saying there are not some people who will be asked to
  consider the option to maybe move to another location from their present one,
  but that is very, very small indeed.  There are people whose jobs will change
  as we shift our resources to more front line, that is the interface on the
  business side between ourselves and the customer, the taxpayer.
        21.      Have you set new performance targets or performance objectives
  for these new sections?
        (Dawn Primarolo)           Yes, we have.  Obviously we have our PSA targets 
  which ---
        22.      I am here more talking about ones that may be generic within
  Customs and Excise.
        (Dawn Primarolo)           What we are doing at the same time, and I think this
  came from the Committee as well, it ties in with our Closer Working, is to set
  specific objectives in terms of measuring improved customer service, improved
  compliance and better facilitation.  I think the Committee requested that
  there was an annual report in looking, for instance, at the Closer Working,
  in measuring that, and that it should be made annually to this Committee. 
  Yes, I am quite happy to do that.  What we need to establish is how we measure
  that.  We have our standard measurements that our PSA requires of us - how
  quickly we answer phones, how quickly we do visits, etc - but we really want
  to focus much more on the improvement of the quality of the service.  This
  also fits into the joint work that Customs and Revenue are doing on the
  question of compliance costs, in measuring those and trying to find ways of
  reducing compliance costs for our taxpayers.
        23.      The regional units, as we understand it, are to be abolished. 
  Does that mean that the co-ordination, if you like, both of intelligence and
  deployment between these two sections will all be done at headquarters?
        (Dawn Primarolo)           No.  Somebody correct me if I get this wrong.  The
  operations of the offices are intended to ensure that those offices can
  respond quickly, not only following what is required by the department as our
  overall objectives but to have more responsibility for delivery of those
  objectives and to be able to fine tune them for particular need.  There is
  always cross-reference.  What Mr Broadbent and his team have tried to ensure
  in this reorganisation, and obviously it is early days yet, are clear lines
  of accountability and who will be able to be in contact with whom, rather than
  nobody having responsibility until it gets to head office.  That is being
  reversed now.
        24.      This may not be policy but do you accept that the organisation
  of Customs and Excise in this way lends itself to a future split in which the
  business services side of Customs and Excise would effectively become part of
  the Inland Revenue and the intelligence and investigation aspects of Customs
  and Excise would become part of the Home Office services, the development of
  the National Criminal Investigation Service and so on?  It does lend itself
  to that.
        (Dawn Primarolo)           That is not the motivation for the reorganisation. 
  We have been through this discussion before about merger between Customs and
  Inland Revenue and my attitude to that, which is I am not convinced that is
  the way forward.  What it does do is clearly, clearly identify the two main
  functions, the protection of society role, if I can call it that, which is
  within the enforcement, and the business taxation which is in the other unit
  and makes it much easier, I hope, for those two units to co-operate with all
  the other organisations that they have to.  One of the things about Customs
  is that it is not just the Inland Revenue, important as the Inland Revenue are
  of course, that they are working with and co-operating with, it is a number
  of other Government departments, for instance the Home Office, MAFF, the
  intelligence services, DTI on trade facilitation.  They have to have focused,
  clear relationships with a number of different organisations and this
  restructuring enables us to deliver that.  If somebody takes the decision in
  the future that is for them but that is not the purpose now of the
  reorganisation, it is efficiency.
        25.      But you do accept that it does lend itself?
        (Dawn Primarolo)           I do accept that some people might speculate it does,
  yes.
        26.      Right, that is fair enough.  Coming to the Closer Working
  programme itself, which is going to be an important activity of the largest
  of the Customs and Excise two units, are you satisfied that there is now a
  meaningful programme of Closer Working which is targeted at producing
  measurable benefits?  You referred to the annual report that we have requested
  and you have indicated your view about that.  When could we anticipate that?
        (Dawn Primarolo)           In terms of the progress of Closer Working, and I
  think that both Mr Montagu and Mr Broadbent covered this in their separate
  appearances, I think it would be an understatement to say that we have learned
  a great deal in the approach that hitherto had been used in order to encourage
  it.  We now have real progress in a number of areas.  I think that you have
  been informed, but just to recap, that what we are going to do, for instance,
  is have 14 of the largest businesses managed by joint teams, Customs and
  Revenue in one team, and that will start on 1 April.  We are going to have 20
  shadow economy teams and they will be operational, in addition to the ones we
  already have, on 1 April.  We are developing a single unit on company
  voluntary arrangements, particularly looking at insolvency, which is something
  we need to do some more work on, and on joint debt recovery services, which
  has been of some contention in Parliament in terms of when the two departments
  engage in these activities.  And, of course, a joint audit of our computer
  services.  As I said, it is about getting better value for money, customer
  improvement, better compliance.  Given that we are to start that, locating the
  teams, teams put in place, training completed, I think for the 20 shadow
  economy teams the final location has been agreed and the facilities are being
  developed.  An annual report seems to me to be suitable in April 2002 because
  that is when the teams will have been assessed.  I cannot personally see any
  problem.  The Committee might prefer to have a sort of half-way house of an
  update, say six months into the process, with the formal report being done at
  the end of the first year.  I can do a note to the Committee if you do not
  already have the information about where the locations of these different
  facilities are going to be rather than go through all the locations now.  As
  I have said, I am happy to send a note or go through them now, whichever you
  prefer.
  
                               Chairman
        27.      Would it be possible for you to write to me about that?
        (Dawn Primarolo)           Yes.  I have got quite a lot of information here, Sir
  Michael.  It is things like where the audit computer accounts will be based,
  where the risk analysis and intelligence will be based, the actual locations. 
  Rather than go through all the towns and cities I am happy to do a note for
  you and get it to you by Monday, if I can.
        Chairman:   Fine.
  
                               Mr Beard
        28.      Could you update us on the strategy for tackling tobacco
  smuggling that you launched last March?
        (Dawn Primarolo)           The vast majority of the Customs' staff which were
  planned for introduction have now been recruited.  I think we are at 85 per
  cent of the staff.  Three of the x-ray scanners are now operating.  There are
  two more being built for delivery in April and orders are planned for a
  possible further ten, but naturally we are assessing the scanners.  The
  scanners are mobile, we can move them if necessary.  We have undertaken the
  advertising campaign which is developing.  In terms of the results, in the
  first nine months of this year 2.1 billion illicit cigarettes bound for the
  UK were actually seized.  Our target for the year was 2 billion I believe. 
  Yes, 2 billion.  We have severely disrupted or broken up in those nine months
  38 organised gangs, very large criminal gangs.  In the first nine months we
  have seized 6,658 vehicles - Customs like to be precise about this - which is
  up 65 per cent on the corresponding year.  Our combined efforts on
  intelligence gathering, disruption and seizure at ports and then inland
  disruption and seizure, as well as the use of our increased penalties, are
  very promising in these first nine months.  We are achieving the first set of
  targets in terms of disrupting those who are organising it as well as seizing
  the goods.  Clearly this is a three year strategy and we need to look very
  closely at our experience over these last nine months, and that is what we are
  going through now, and the last three months of the year when we have it, as
  to what that teaches us about what we need to do to increase our activities
  to meet the challenging targets of the next two years.
        29.      What elements of the strategy are proving most productive?  Are
  the scanners proving very useful in all of this?
        (Dawn Primarolo)           Absolutely.  As you know, we are not talking about
  what was commonly known as the "white van" trade, although we have strategies
  to deal with that as well, this is the systematic freighting in in containers,
  often concealed, of millions and millions of cigarettes at a time.  Our
  intelligence is informing which containers we suspect.  It takes us, I think,
  three minutes to scan one of these containers now, it used to take us five
  hours with a larger number of Customs' officers to physically search these
  vehicles.  Obviously the scanners are proving extremely useful.  The
  disruption of the criminal chains by using the intelligence combined with
  action on the ground is proving very successful.  Those are the main elements
  I think.
        30.      ASH pointed out in oral evidence that the essence of this
  smuggling is taking cigarettes from the United Kingdom and going through
  places like Andorra, Montenegro and Latvia.  This must be a very big element
  of their economy, is it not possible to take steps at that end as well as at
  the United Kingdom end to stop this?
        (Dawn Primarolo)           Indeed, and our intelligence work outside of the UK
  is directed at that.  You are quite right to point out that these goods are
  coming back from wider fields, the Balkans, the Far East, South Africa,
  certainly outside the European Union.  It is very important that we have that
  information.  Obviously as we are seizing the goods we are profiling the goods
  that we seize.  There is a significant presence of counterfeit tobacco
  products.  It is difficult to estimate exactly but somewhere in the region of
  20 to 30 per cent.  The rest is predominantly manufactured in the UK by
  British tobacco firms and, in fact, three brands dominate what we seize.  It
  is very important that in working with the manufacturers we are able to trace
  whether or not some of the exports actually end up having gone through a
  chain.   They do not go to one place and come straight back, they go through
  a chain of different countries and then come back, so appear to be sold
  perfectly legitimately, and that is what happens subsequently.  What Customs
  are working on is to find out whether and how that could be fuelling the
  products that are being smuggled back into the country and, therefore, what
  steps we would need to take to deal with it.  That is a very urgent piece of
  work that we are currently undertaking.
        31.      Are you at all concerned that some of the tobacco manufacturers
  themselves are facilitating tobacco smuggling, either knowingly or otherwise?
        (Dawn Primarolo)           The tobacco manufacturers in the UK continue to say
  publicly that they are just as concerned as the Government about the level of
  smuggling of products into the UK.  So we have initiated steps to ensure that
  we are able to share information that may be helpful in helping us trace goods
  that are being rerouted back into the UK.  Customs' teams have been into the
  manufacturers and are challenging and are requesting data on the export trade
  to see whether we can marry that up with the intelligence that we are
  collecting through the seizure of the goods.  I think it is very important to
  say, nonetheless, that the export of cigarettes from this country is a huge
  trade and the overwhelming majority of that trade is perfectly legitimate and
  ends in source.  What we have noticed is that certainly there appear to be
  exports to places where the domestic consumption would not indicate that level
  of purchase, if I can put it that delicately.
        32.      Minister, Mr Broadbent told us that he felt that there was "a
  very strong common vested interest" between the tobacco manufacturers and
  Customs and Excise in tackling the smuggling problem.  Is that necessarily so?
        (Dawn Primarolo)           The tobacco manufacturers continue to say that is
  their view, yes, and that it is not in their interests to see the growth in
  the last few years that we have in this huge trade - we are talking about one
  in five cigarettes before the Government started its action - and they wish
  to co-operate with us.  So we now have a series of questions which we would
  expect them to co-operate in answering so that we can ascertain whether there
  is a link, and if there is what they, and us, need to do about it.
        33.      Is it not strange that so many of the smuggled cigarettes
  actually originate in the United Kingdom?
        (Dawn Primarolo)           I think in the United Kingdom it is a huge industry
  in terms of production here.  Of course, we are talking about very substantial
  companies:  Imperial, Gallaher, BAT.  These are world leaders, so it is not
  surprising that there is a huge manufacturing base here in the UK and a lot
  of that would be exported.
        34.      The campaign for Action on Smoking and Health has suggested that
  there is almost an unhealthy closeness between elements of Customs and Excise
  and the tobacco manufacturers.  Would you care to comment on that?
        (Dawn Primarolo)           I deeply regret that comment, it is not true.  I think
  Customs are proving quite clearly now that cannot be true, once they have the
  specific resources and the new strategy, by their ability to challenge and to
  deal with this growing problem of the smuggling of cigarettes.  I do not think
  it is helpful that anybody should speculate or make allegations, whoever they
  are, without the facts of the case, and there are no facts to substantiate
  such a proposition.
        35.      What did the Butler report into the collapse of the Regina v
  Doran case tell you about the workings of Customs and Excise's legal team?
        (Dawn Primarolo)           It revealed the complexity of the work undertaken by
  Customs and in particular when you have a department that is putting together
  international intelligence collection and is trying to stop goods arriving
  here in the UK in the first place rather than wait for it to arrive here and
  seize it.  My understanding is that on all of the points, and there was a
  review team to look particularly at the role of Customs having prosecution
  powers and solicitors' offices inside Customs, that report has now been
  reported to the Attorney General, because it was decided that the Attorney
  General would be the best person to deal with this.  He will be making
  recommendations on that on behalf of the Government.  I think that the problem
  for Customs clearly is they are very high profile cases, so when a case goes
  wrong it is big news.  When their success rate is scrutinised they have a
  very, very good and high success rate, it is just that the nature of these
  cases means if they go wrong they are rather large cases that go wrong.
        36.      The Butler report was quite an indictment of the legal team in
  this particular case.  Were the findings of the report surprising in the
  department?
        (Dawn Primarolo)           Personally I thought it was rather mixed.  It did say
  some rather good things about the department, it said quite a few.  Obviously
  it is important, it is nice to have the good things said, but one has to focus
  on if there are weaknesses and those need to be addressed.  Customs are a
  robust organisation in the sense if something is not being done correctly then
  they will set about taking on the recommendations and dealing with it.  The
  review on whether or not the solicitors' offices should remain in Customs and
  Excise, as I said, is a matter for the Attorney General and not for me, and
  I think that is right given some of the criticisms that have been made, and
  will be reporting soon I understand.
        37.      You have already received the report that you are referring to?
        (Dawn Primarolo)           Yes, we have, but the Attorney General is in the lead
  on it, not us.  The review team looking at what should happen, on behalf of
  the Attorney General, obviously is looking at both the reports.
        38.      When is it likely to be published?
        (Dawn Primarolo)           I really do not know that because it is not in my
  gift.
        39.      There is no forecast?
        (Dawn Primarolo)           No. I do not think it is going to be very long though.
        (Mr Hanson) It should be ready soon.
        (Dawn Primarolo)           Yes, I understand it is going to be quite soon.  It
  is the Attorney General, we will just be notified when he has made the
  decisions on the date.
        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 IT2K (?) 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 to improve the Revenue Department's work on tax
  policy?
        (Dawn Primarolo)           Firstly, clearly when looking at the Treasury
  Department 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 that
  issue?
        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)           Yes, it is being addressed - your first question.  On
  your second question, I doubt it, ensuring that everybody is always at one
  with the Inland Revenue.  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 strength, 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,
  and 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.
        60.      This carries the implication that potentially a very large number
  of taxpayers may either have paid too much or too little because of that.  Can
  you quantify that?  Is this something the National Audit Office are looking
  at?
        (Dawn Primarolo)           I cannot quantify that at this moment with regard to
  the 1.7 million, but the answer would be, yes, it would be something, as I
  understand it, the National Audit Office would be interested in and would seek
  to quantify at the relevant time in agreement with our statisticians.
        61.      Do you think the computer systems that the Inland Revenue now
  has, bearing in mind it is two different ones anyway which do not completely
  talk to each other, are adequate for the job they are now committed to?
        (Dawn Primarolo)           Yes, I do.  The average reliability of the Inland
  Revenue IT systems is over 99 per cent - over 99 per cent - which is well in
  line with any other comparable organisation.  I do not know whether Dave
  Hartnett remembers but the scale of the information that we deal with in terms
  of it being processed through these computers is truly phenomenal.
        (Mr Hartnett)  30 million taxpayers.
        (Dawn Primarolo)           We are talking about a colossal amount of information. 
  There were particular problems which are well-documented with regard to the
  NIRS2 computer which was commissioned under the previous Government, was
  supposed to come live for the year ending 1997-98, was then transferred into
  the Revenue with the Contributions Agency, and there were particular problems
  with that 1997-98 year return because of the system not being able to deal
  completely with the information.  Clearly, my priority as a minister when the
  particular system was transferred over to us was, firstly, to ascertain it
  would work and it could be made to work, that it should be stabilised and that
  we should move as quickly as we possibly could to deal with the 1997-98
  returns and make sure subsequently the system was working well.  We are
  confident in terms of the non-matched items that we will be restored to the
  previous position - we always had unmatched items at the end of every year,
  it is not just a product of a computer system, manually you would have those
  issues as well because it is about incomplete records, somebody may have done
  several different jobs and we cannot trace them, we do not have the right
  address, or they have moved on from an employer and that employer does not
  know where they are and you cannot match them up, so there has always been
  this issue of non-matched items.  What we have to make sure is that that is
  in a proportion which would be acceptable and we find ways of driving that
  down even further, which is what we are doing.  Although incredibly time-
  consuming and difficult to do, reviewing cases on an individual basis may help
  us in developing strategies for the future on how to monitor this better.
        62.      When the Government is considering tax changes, does it also have
  some kind of analysis of whether the IT systems which underpin it are robust
  enough to support the tax change?
        (Dawn Primarolo)            Yes, absolutely.  An example would be the Working
  Families Tax Credit when we had to build out of the Family Credit IT system,
  and it constrained the development of some of the policy issues until we had
  improved the IT system enough to cope with some of the changes.  We absolutely
  have to make sure we can deliver the policy, and IT considerations are
  paramount.
  
                               Mr Beard
        63.      Do you think the self-assessment system is now settling down?
        (Dawn Primarolo)           Yes, I do.  If you look at the number of returns and
  the proportion of people making returns, the self-assessment system is bedding
  down quite well.  Clearly there are still outstanding issues which we need the
  information from previous years to refine, for instance, the use of the
  internet, and our experience from this year, and analysing - I believe it is
  called "mining", I do not quite know why - the data in terms of late returns
  and why we continue to get late returns.  It is in about the same proportion
  as before self-assessment, so it is not new.  This year we have tried to focus
  on whether particular groups were at risk of sending in late returns, so some
  of our advertising was targeted specifically at them.  In the last few weeks
  as we came up to 31st January, something like 3,000 people were telephoned or
  written to, or both, who we thought were at high risk of not getting their
  return in on time.  Now what we are doing is looking at the groups which may
  become late returners, whether there is an underlying policy issue there, or
  whether it is presentation and whether we need to focus more on those groups.
        64.      What is the proportion of late filers this year, given that the
  deadline was last week?
        (Dawn Primarolo)           It is 10 per cent of the total.  There are
  approximately 9 million self-assessment returns and about 10 per cent of them
  come in late.
        65.      Did I understand you earlier to say that was about the same as
  last year?
        (Dawn Primarolo)           Approximately, and pre-self-assessment as well.  Late
  returners is not just something which happened with self-assessment, it was
  always an issue in the tax system.
        66.      Are you at all concerned that the proportion of taxpayers
  submitting late returns and asking for the Revenue to calculate their tax
  bills is increasing?
        (Dawn Primarolo)           We have no indication of that.  Something like 49 per
  cent of the returns are received in time for the Revenue to do the
  calculation, which is the 30th September date.  Obviously the Revenue will
  continue to assist and advise, but the date where the Revenue calculates a
  liability or refund seems to be working quite well.
        67.      Is that not rather a high proportion for a system which is
  intended to be self-assessment?  If I understood you rightly, 49 per cent are
  asking for the calculation to be done?
        (Dawn Primarolo)           49 per cent returned on or before 30th September.
        68.      Sorry, I misunderstood.  I thought you were saying 49 per cent
  were the people who were asking the Inland Revenue to calculate their tax
  liability.
        (Dawn Primarolo)           That is right, but after 30th September they could not
  even request that.  After 30th September we do not guarantee to be able to do
  the calculation of their tax in time if they wanted us to do so.  I was just
  indicating that 49 per cent of all returns are in before 30th September, which
  is the date people know about if they absolutely want us to do that.  The
  percentage of those returns where we have calculated the liability, I do not
  actually have.  I do not think we have that analysis.  I can try and get it
  to see if we can break the information down.  It is a bit like internet
  filing, 38,000 individuals did it but something like 130,000-odd were actually
  logged through internet filing because the remainder were done by
  representatives of the taxpayers.
        69.      38 per cent filed by internet?
        (Dawn Primarolo)           130,000-odd filed by internet, of which 38,000 were
  individuals and the remainder were representatives who were doing the returns
  for an individual.
        70.      Is there anything which can be done to make internet filing
  easier, because it does seem to be a bit of a palaver for individuals?  They
  have to register, receive a password by post, then install their own software. 
  There are quite a few barriers to them doing it.
        (Dawn Primarolo)           Yes, all of that is being changed.  What we wanted to
  do, and we did actually say this, was to have the internet filing option and
  we knew we would have to refine and develop that, as happens with the
  development of these sites, and also that we would need to take the site off,
  close the site down, on two occasions because we wanted to make changes.  What
  we are doing now is a review, learning the lessons, and making improvements,
  so the sort of points you are addressing are not issues for next year.
        71.      Do you have any target for the proportion of submissions you are
  aiming to have through the internet?
        (Dawn Primarolo)           I do not have a target at the moment.  What I have
  asked Revenue to do for me is a break down of the self-assessment returns -
  how many people do it individually, how many do it through representatives,
  of that split how many would, regardless of what we did, prefer still to do
  it through the post.  So that we try and get a better understanding out of
  that population of 9 million who would be likely to want to internet-file and
  what we need to do to make that easier for them, rather than just assuming
  somehow we could make a one-size-fits-all for the 9 million, because in that
  9 million you go from very simple, straight forward returns to very complex
  returns because of income and assets.
  
                               Chairman
        72.      The one bit of unfinished business is this letter which you will
  be sending us on the closer working report?
        (Dawn Primarolo)           Yes, and I also promised one to Mr Cousins on the peer
  review.
        73.      Yes.
        (Dawn Primarolo)           And the policy co-ordination in particular.
        74.      We will give you, if it would be helpful, our input into the
  format question on the closer working.
        (Dawn Primarolo)           Indeed, yes, that would be good, and the annual
  report, yes.  Excellent.
        75.      Then we will have another meeting.
        (Dawn Primarolo)           Yes, of course.  We will try to get the notes to you
  by Monday.
        76.      Thank you.
        (Dawn Primarolo)           Thank you very much.