Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  100. So you have introduced a massive new system and you have no assessment of how it actually affects the people who fill them in?
  (Sir Nicholas Montagu) We have all sorts of assessments but what we do not have is the figure for which you asked. There are a number of ways in which we do continuously monitor the progress of the system.

  101. But not a figure of how many people have had to employ an accountant who previously did not employ an accountant?
  (Sir Nicholas Montagu) Stephen is telling me that he thinks that it has stayed steady. This is something that I can check on and if it turns out that we are wrong and it did not stay steady we will include a footnote in the transcript to that effect. I gather that there is some difference of view here so I think perhaps the best answer is this is not a figure we have. As Mr Tarrant says, that is my final answer. Basically we are clearly not sure so, as I say, final answer is we do not know and, yes, I will take the money rather than answer the next question.

  Mr Osborne: Sadly my time is up.

Mr Gardiner

  102. Sir Nick, do you know the answer or the punch line to that joke about why the shark will not eat the lawyer who has had his limbs severed in the water?
  (Sir Nicholas Montagu) I know a lot of jokes of that sort, Mr Gardiner. If you key in on the internet, because being a thoroughly modern mandarin this is something I sometimes do, "tax man" and "jokes" you will get similar ones.

  103. The one I am referring to about the lawyer, the reason the shark will not eat the lawyer in the water is supposed to be professional etiquette. I have to say that on reading this report I did get the sense that there was a bit too much professional etiquette between the NAO and yourselves in this. I think my colleague, Mr Osborne, has brought out some of it, perhaps not all. What strikes me is that here if you look at the three central chapters, the thing that sticks out most to me is if you look at sections 2.14, 3.13 and 4.12. I am thinking of the lines that say ". . . the Department set up specialist risk, intelligence and analysis teams in April 2001" and in 3.13 "The Inland Revenue established a separate Directorate of Receivables Management in June 2000 and in March 2001 transferred new return cases and certain debt management work to an outbound call centre", and in 4.12 ". . . and in April 2001 established 60 specialist Area risk, intelligence and analysis teams to improve the focus of compliance work". When Mr Osborne pushed you on whether this review and change of process was underway beforehand you said "Yes, I have to say it must have been" but clearly it was not, was it?
  (Sir Nicholas Montagu) Mr Gardiner, that is a long and complex question. Perhaps I might—

  104. Sorry, with respect, it is not, it is a very simple question. The question really is—
  (Sir Nicholas Montagu) Would you like me to answer it, Mr Gardiner?

  105. Yes. Let me state it in a simple formula so you can answer it simply without bamboozling the Committee. The question is this: all of the measures which you took to redress the flaws that were seen and noted in this report were taken in April or June of this year, that was when they were set up, was it not?
  (Sir Nicholas Montagu) No.

  106. Why was it so late?
  (Sir Nicholas Montagu) It is not so and I will explain. The reason I said it was a complex question was your opening remark—I know that Sir John is well capable of defending himself—that I have to take issue with. It was a report conducted with the utmost professionalism, it was a report that challenged us.

  107. It is not Sir John I am challenging, Sir Nick, it is you. I understand that this is an agreed report, I am well aware of the way in which reports are negotiated for their wording. The question I asked you is not about the way in which the report came about and the professional way it was done but I am asking why it was that the specific measures taken to redress the three major failings shown in this report were taken so late on in this year, one month or two months before this report was published?
  (Sir Nicholas Montagu) I will answer that question in a moment, Mr Gardiner. I must be allowed to challenge your implication that there was a cosy relationship between the National Audit Office and us. It was a report carried out with utmost professionalism following the methodology set out in the report and with a good deal of challenge on both sides. There was no cosiness.


  108. We accept that. Let us pass on to the main part of the question.
  (Sir Nicholas Montagu) I am grateful that you accept that. Thank you, Chairman. So far as the changes are concerned, it is not true that all the changes to improve the way in which we administer self assessment were carried out this year. I have referred to the iterative and constant attempts to improve the statements of account, to improve our systems, to improve the literature, the improvements to the tax calculation guide that were carried out last year. It is certainly true that the structural changes were carried out this year. As the Comptroller and Auditor General's Report makes clear, the full data, on the basis of which we took these decisions, was not available for some time. The first year of self assessment was 1997-98 and our priority was to get it in as well as we could. It is a tribute both to my people and to the tax agents that we did so as well as we did. Once it was settled in at that point it made sense as part of a look at our wider business, as part of our refocusing the business in the way that I have described, to look at our structure, to look at the way we handled risk. I frequently discussed with the predecessor to this Committee other improvements which we put in place well before this year. We cannot do everything at once, we order our priorities within the resources available and I am unapologetic about those priorities.

Mr Gardiner

  109. What you are telling the Committee is that all of the changes that were set up that I referred to in the paragraphs initially would have been set up, those changes would have happened, had this report not taken place?
  (Sir Nicholas Montagu) Yes, that is absolutely right. Of course there are particular points that we have taken from the report that I have indicated already. It is a valuable report. The obvious example is the point that Sir John highlights about we were making inadequate use of daily penalties. The risk, intelligence and analysis teams resulted from Lord Grabiner's recommendations which were not available early in self assessment.

  110. Are you aware of the percentage collection rate that is applied in local authorities to local taxation?
  (Sir Nicholas Montagu) No, I am not.

  111. Standard good practice would have that in local authorities at about 98 per cent. Now the figure that you have accepted here in this report, between 1.8 billion and three billion potentially at risk out of a tax take at 55 billion, would you accept—if my figures are correct—means that your collection rate is somewhere between 96.75 and 93 per cent?
  (Sir Nicholas Montagu) I think the analogy is not fair, Mr Gardiner. Local authorities are collecting fixed amounts from known people living in the area but we, in the way that Sir John recognises, are handling a large—and we do not know how large—hidden economy.

  112. Okay. The decline in the percentage of self assessment tax returns filed by 31 January—you may be interested to know I am on your side here—that has taken place since 1996-97 to 1999-2000, do you believe that any part of that decline is due to the transfer in the tax system going over to a current basis of assessment and, if so, how much?
  (Sir Nicholas Montagu) I am sorry, do I believe that it is due to?

  113. What I am saying is because the tax system has changed to go for a current year basis of assessment, do you believe that has had an impact on the number of returns that are filed late?
  (Sir Nicholas Montagu) No reason to believe that actually, Mr Gardiner. The percentage of returns coming in are, as I indicated, far higher, as Sir John notes, than under the previous system. We do not know why the figures are dropping and that is why things like the leverage trial that I mentioned are important. It may simply be that people are getting a bit comfy and a bit complacent and a bit thinking it does not matter. It may be that a large number of returns—and this again is something we have been looking into—are ones where either a payment on account has been made or where the tax due is less than the penalty and, therefore, the penalty will not be the £100, but that is why the kind of specialisation that our receivables management provides—the chase up with the automatically generated letters and the predictive telephone dialling—are so important. Dave, do you want to add to this?
  (Mr Hartnett) Just to add, Mr Gardiner, that when self assessment was being devised there were a great number of representations to say that the current year basis would make it much easier for people to get their returns in quicker.

  114. I agree with you entirely and ultimately that is the case. What I was trying to point out was that having moved from a system in which you are doing part current and part previous years, as we were during this period, to catch up sometimes people were having to do effectively two tax year returns in one 12 month period to try and get up to the state of play.
  (Mr Banyard) I think they did the catching up in the transitional year and I think out of that we got a very big increase in the number of returns compared with the previous system. I think the 90 per cent we are getting is a quantum leap on where we were. We have now got a gradual decline. We are trying to understand how to tackle that. We would like to tackle it through ways that help the taxpayer through prompts, through advertising. If that does not work then we will have to look at the other end, at our deterrent powers and our penalties.

  115. If I can refer you to paragraphs 4.9 and 4.10 ". . . the quantitative and qualitative targets for compliance work, at national, regional and local level". 4.10 about the ". . . initial local office compliance plans and targets were based on the resources and abilities of their compliance staff. In the process of agreeing the national targets, local plans were adjusted to match the overall target; some regions have fallen behind their plans part way through the year, for example because of skills and resource shortages." Can you comment on what has now been put in place to combat those problems?
  (Sir Nicholas Montagu) I will ask Stephen to reply in more detail because this falls fairly and squarely within the local services directorate. Essentially the difficulty is the one that the report observes. It will be commonplace to the Committee that in London and the South East it is more difficult to attract and retain staff than in other parts of the country. One of the things that we have been doing is moving more work outside London where we do not encounter the same difficulty. What 4.10 is talking about is that we manage our compliance programme nationally in order to deliver the targets that we have agreed with Ministers, and that means that we do move work to where we have resources. We try to keep it flexible but equally, obviously, we are aiming at a structure where we reflect—

  116. I am very sorry to interrupt you. I know the Chairman is about to give me his two minute deadline.
  (Sir Nicholas Montagu) Stephen, would you like to add to that?
  (Mr Banyard) We have addressed it. We do it through recruitment and making sure we have got the right number of people there who are trained and ready to do the job. If we face wastage in London or the surrounding area, either we move work out or we move people in.

  117. My question is what specific measures have you taken to address the problem?
  (Mr Banyard) Recruitment, making sure we have the right number of people and moving work around if we have got local imbalances. That is what we have done. We are on top of it.

  118. That problem is not going to be ongoing?
  (Mr Banyard) That problem is not with us at the moment. I cannot say that we will not suffer problems in London in the future.

  119. Thank you. If I can just refer you to Appendix 3, and the list of measures taken in other jurisdictions, where it says "There are close links . . .".
  (Sir Nicholas Montagu) I am sorry, Mr Gardiner, I am having difficulty hearing you.

previous page contents next page

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

© Parliamentary copyright 2002
Prepared 9 May 2002