Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 20 - 39)

MONDAY 22 OCTOBER 2001

SIR NICHOLAS MONTAGU KCB, MR DAVID HARTNETT AND MR STEPHEN BANYARD

  20. You say you are working with the professional groups, and that is fine, but as I understand it half of people who return these forms are not going through chartered accountants. As well as this going through the professional bodies, what steps are you taking, through MORI polls, other bodies, to try and find out what is worrying the public, what they find difficult and how you simplify that?
  (Sir Nicholas Montagu) That is an area of activity where I readily concede we have not done enough. We do try out booklets and forms on representative groups of taxpayers and we do get feedback after the introduction of them. What we are doing, and this was part of what the appointment of the Marketing Communication Director was all about, is trying to segment our customers to understand the groups that they fall into, to get in touch with those groups to find out what their needs are, what their wants are, what they like about the Revenue, what they do not like about the Revenue. We are also working very closely with Citizens Advice Bureaux, with the Low Income Tax Reform Group, with the Chartered Institute of Taxation and we are doing research direct with taxpayers. Again, it is a front that we are very active on.

  Chairman: Thank you very much. Mr Davies?

Mr Davies

  21. Nice to see you again, Sir Nick. We met up in Croydon. Can I ask you a few questions first of all about undetected tax. You mentioned the children's question, the amount of undetected crime rose last year, to give a logical commentary on that but it is the case, of course, that the British Crime Survey does measure undetected crime by doing a survey of thousands of people and noting the level of unreported crime going up or down. We know that the level of crime reported is between 20 and 25 per cent of actual crime. Why is it not the case that you have thousands of people filling in diaries or some other market research methodology to try and get a more accurate qualification of the amount of missing tax?
  (Sir Nicholas Montagu) Well, I think we do, Mr Davies, in this sense: what self assessment enables us to do, which the previous system did not, is to undertake random enquiries. The Comptroller and Auditor's General Report, rightly if I may say so, lays great emphasis on this. By undertaking random enquiries, for the first time we get a real bottom up indication of the kinds of sums that may be at risk.

  22. And indeed those amounts, as I understand it, the non-compliance estimates lost, were between 1.8 billion in 1997-98 and three billion in 1996-97.
  (Sir Nicholas Montagu) Yes.

  23. And you in your endeavours picked up something like 20 per cent of those which means there is 1.5 billion left. What would you say the marginal return on extra investment is in recovering some of this money? It is an enormous amount of money in terms of any of our services.
  (Sir Nicholas Montagu) Sure.

  24. Can you quantify how much more money you would have with a bit of extra resources in these areas?
  (Sir Nicholas Montagu) I do not know that I could come up with that figure. What I can certainly say is this: the marginal return for enquiries of this kind is lower than it is for tax as a whole. The report, I think, mentions the cost of collection being relatively high for self assessment. For tax as a whole we spend 1.1 penny for every pound collected, but if you are dealing with the cases handled, say, by our Large Business Office you are going to get a much lower cost of collection. Here we are dealing with small cases often at the margin. Our research has also shown that the amounts due from late returns are often less than that due from the returns in on time.

  25. From that last comment you made, namely how small the marginal cost per pound collected, is that one of your key targets? It strikes me that the marginal cost of extra collection is obviously going to be more than the average by definition.
  (Sir Nicholas Montagu) Yes.

  26. Any rational business would move that marginal cost of collection up to the actual amount of collection. Does it not follow from what you are saying that you are focussing on the wrong thing, you should be spending more on getting some of this 1.5 billion that you are letting loose into the black economy?
  (Sir Nicholas Montagu) I do not really think so, Mr Davies. Again, it comes back to what I said to the Chairman about balance. If I neglect the very high yields that, for example, my Special Compliance Office and my Large Business Office bring in, I think this Committee would have something to say about that. The key thing about random enquiries and what I have said about the improved risk analysis is that we need to refine our risk assessment. This is what we are now doing iteratively through these schemes and through the random enquiries. I must emphasise the point that before self assessment we had no powers to undertake random enquiries, so it is an invaluable new source of intelligence.

  27. Can I ask you something about random enquiries then in terms of casual labour, particularly in respect of the building trade. I suspect that possibly even people in this room have been asked to pay cash for building work and that sort of thing, I would not actually know, surely not, but in terms of having an idea of how big this is, is there any prospect of people going round in a given area spotting all the physical building going on, looking at all the scaffolding and checking whether those particular addresses and those jobs ultimately do filter through the tax return of the relevant building works who probably advertise on the scaffolding? Do you understand the question?
  (Sir Nicholas Montagu) I do indeed and I will get Dave, if I may, to answer it in some more detail in a moment. The essence of the improved risk analysis that I keep on emphasising is that we will have a better idea of which sectors, and the construction industry could well be one, we should target for our activities. Stephen's people would then kick in with the compliance activities. I mentioned the Construction Industry Scheme before—

  28. Can we do the sort of thing that I just mentioned, because we are short of time? I know that ten per cent of tax returns are late after 31 January. Will you be phoning and contacting those ten per cent of people who are already known to be habitually late to ensure that they are not late again?
  (Sir Nicholas Montagu) Every single one of them, Mr Davies. That is an answer that I need to amplify. Of the 900,000 people who are—

  29. Before Christmas?
  (Sir Nicholas Montagu) In good time for the January return. The important point is this: there were 900,000 of them and some of them will not have been sent tax returns this year, maybe they have died or gone out of business. Some of them will already be in touch with us over, say, some disputed debt.

  30. The ones who are not—
  (Sir Nicholas Montagu) What we are talking about, we are talking about a hard core of 200,000 people.

Chairman

  31. One at a time, please.
  (Sir Nicholas Montagu) What we are talking about is 200,000 people and, yes, we will be ringing up every single one of them using modern predictive dialling techniques.

Mr Davies

  32. What about checking out people with scaffolding? You just check that household is somewhere in their accounts. My suspicion is quite a high proportion of builders may have quite a high proportion of their jobs not in their returns. I may be wrong.
  (Mr Banyard) Mr Davies, can I take this. Quite simply, the Construction Industry Scheme enables us to identify lots of builders. When we investigate one of the key questions is "What jobs have you done for cash" and we will pursue that. Our research and analysis teams, which Nick was talking about earlier on, are interested in just what you describe.

  33. You take my point.
  (Mr Banyard) Absolutely.

  34. The point is you can physically see the work and make a note of it.
  (Mr Banyard) And that plays into our risk assessment.

  35. That particular job is in the return as a random test?
  (Mr Banyard) Yes. That goes into our risk assessment.

  36. It was commented that the target is moving from people to yield which I was surprised by. Do you know what the tax yield from intelligence work is? The suggestion, therefore, was what we want is the number of people, which is obviously very important, but what we want is their money, is it not?
  (Sir Nicholas Montagu) Again, I want to be as helpful to the Committee as I can on this but, as the report makes clear, intelligence yield is not a simple and straight forward concept in this sense. If our intelligence results in our finding somebody then the yield may show up in all sorts of ways. It may come from continued compliance once our right track team have got them in; it may come in through our employer compliance figures; it may come in as direct intelligence yield. So there is no straight answer to that. What we are aiming to do—although as the Committee knows we do not target yield as such, and as Stephen pointed out we are moving much more towards targeting people—is we do nevertheless forecast yield and we would expect that to rise.

  37. If you look at the percentage of self assessment by 31 January, as you know very well in 1996-97 it was 92 per cent and it has been going down ever since.
  (Sir Nicholas Montagu) Yes.

  38. In 1999-2000 it was 89.5 per cent. It sounds as if you should be targeting people as well and this is plummeting at a time when we are investing more in intelligence work.
  (Sir Nicholas Montagu) Plummeting is a bit of an exaggeration, Mr Davies.

  39. Moving steadily down year after year.
  (Sir Nicholas Montagu) Steadily and slowly down. Plummeting to me suggests speed.


 
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