Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140-159)



  140. You got the £10 whatever happened if you were owed just a small amount?
  (Sir Nicholas Montagu) Yes. If you filed electronically and if the payment or refund was dealt with electronically you got the £10.

  141. Can you tell me about contingency plans. Suppose the whole thing suddenly went wrong or everybody decided that they were not going to use it at all and you had to go straight back to a paper system. What contingency plans do you have now? Presumably you need a lot more staff to handle it.
  (Sir Nicholas Montagu) The Committee has been reminding me that take up is still not enormously high. I think if we had to go back to paper systems, we would look to absorb that within our existing budget and by redeploying staff as necessary. This is quite peaky work. Equally I should say—and again Terry can amplify this if you want—we do have very strong business continuity plans in place. I should make clear also perhaps, in view of some press comment, not about us but more generally, that we have always done so, this well predates the events of 11 September.

  142. I was not thinking so much of your computers breaking down but somebody proving they had been able to get into the system and, for security reasons, a lot of your users suddenly deciding they did not want to use the electronic system any more because they were worried about their details becoming known to other people. If you suddenly got a user rebellion, so to speak, and they said, "We are not going to do this electronically", you might suddenly find you had to do it manually.
  (Sir Nicholas Montagu) The effect would be the same, Mr Rendel, but I do need to stress here what Sir John has said, that our security matches the industry best and it has been validated by the Defence Evaluation and Research Agency. That is a pretty powerful validation.

  Mr Rendel: Thank you.

Jon Trickett

  143. I just want to go over one or two points which I have not fully understood. Accepting this was a political initiative, nevertheless you also said you wanted to prepare a business case or some sort of business exercise was done. Can you describe that to me again, I am not sure I understood what you meant?
  (Sir Nicholas Montagu) Yes. What I am saying is that before any new system is introduced, it goes through a rigorous business case project evaluation.

  144. And that happened in this case?
  (Sir Nicholas Montagu) That would have happened in this case.

  145. I presume you would still want to be cost effective notwithstanding the fact this was a political initiative, therefore I am not quite sure I have understood the calculations about savings which have been offered in this paper and which other members have asked you about. At one stage you talked about a £3 saving. Presumably that is simply for filing, is it?
  (Sir Nicholas Montagu) That is the straight processing saving.

  146. For filing but not for paying?
  (Sir Nicholas Montagu) That is right.

  147. Is there an additional saving for paying as well then?
  (Mr Hawes) Yes, there are additional savings for paying. They were not in that business case.

  148. In the original business case.
  (Mr Hawes) The original business case was concerned with filing.

  149. I understood you to be asked the question, "Have you considered a £3 incentive bonus", and rightly you were asked, "Were you giving this advice to ministers" and obviously, quite rightly, you declined to answer about your discussions with ministers. But it is clear in paragraph 7 in Appendix 2 that you have incentivised in the past filing and paying. Individuals were offered a £10 discount if they filed and paid electronically and companies were offered a £50 discount if they filed and paid. Therefore one assumes you knew the likely savings which might be incurred beyond the £3 if one was paying as well as filing. I wonder if you could indicate if you have done that calculation.
  (Sir Nicholas Montagu) I do not think the figure is in quite that form, Mr Trickett. If I can clarify the business case, yes, there was the policy objective which I have described. Also, of course, providing the electronic channel is an improvement in the service, and we would appraise rigorously—not just in terms of cost and savings—any project. To take an analogy, as you will know, very high up the Government's agenda are new tax credits. This necessitates our putting in place systems five times as complex as those for self-assessment. These are nevertheless, and it is not a question of pay back, subject to the same rigorous appraisal I have mentioned.

  150. I want to return to the issue of incentives if I have time, but I want to understand the calculation of savings, because I think you are using a precise verbal formula and I want to understand what it is we are actually identifying. I seem to think you are separating out the development costs from the operating costs and I wonder if that is the case, since it seems to me it is counter-intuitive to argue that if you were including both the fixed capital costs of the development together with the running costs you would achieve a straight line curve of £3 per head.
  (Sir Nicholas Montagu) We are not separating them out.

  151. So the £3 saving is a straight line taking account of both the capital costs and the revenue costs?
  (Mr Hawes) The £3 saving is the amount we would save per return on our normal operating costs. The business case will include capital and operating costs.

  152. I seem to think you just had a slight difference there, and you gave a more precise response. Just to be clear about it, and if you do not mind I will ask you, Mr Hawes, the £3 saving is the net saving, taking away the revenue costs of the paperwork system from the paperless system, which does not include the development costs and the capital costs of acquiring the additional equipment?
  (Mr Hawes) Yes. Nick made clear earlier in an answer that this was a very precise restrictive figure relating solely to the cost of processing the tax return and nothing else.

  153. I thought that was what you were saying but I am not sure it came out as clearly as that in the questioning. The next question is, what is the development and establishment cost of the system to date?
  (Sir Nicholas Montagu) So far, of the £200 million mentioned in the Comptroller & Auditor General's Report, we have spent rather over £104 million.

  154. That was on all e-services and therefore not all of that £105 million would refer to this.
  (Sir Nicholas Montagu) For what? Self-assessment?

  155. Yes.
  (Sir Nicholas Montagu) We have spent slightly over £30 million on self-assessment.

  156. So if I was to divide the number of people who have filed and paid into the £30 million, that would give me the unit cost to date and that would negate the £3 saving per head, would it not?
  (Sir Nicholas Montagu) It would also be a misleading way of looking at it, for the reason I gave earlier. We are not talking about that sort of figure. We are talking about putting in place a long-term investment in infrastructure to deliver a whole range of services electronically.

  157. I understand that but we are concerned with value for money. I am asking these questions because I do not think they are clearly answered in the Report and, with due respect, I am not sure we have actually got to the bottom of what it has cost per person so far taking up the system.
  (Sir Nicholas Montagu) But I do not think that is the right way to look at it, and that may be why Sir John did not look at it this way. What we are looking at is the cost so far of putting in place a system which is required if the option of filing for self-assessment electronically is to be available. You do not expect, Mr Trickett, on a major development of this sort to get a pay-back in year one, or year two or whatever.

  158. The fact is, if I bid for a bypass around Hemsworth, an analysis will be made of the cost of the road as well as the wear and tear on the road, the number of times the black stuff has to be replaced and so on, and it seems to me that here we are excluding the cost of constructing the road and all the other set-up costs. I think that is a fairly precise analogy. I want to understand what these figures are in paragraphs 9 and 10 and Table 17 on page 29. You will see in paragraph 10 it talks about the transactional cost of £700. I do not really understand what that figure is and how it relates to the table beneath it. Can you explain that to me? What do we mean by "a transactional cost"?
  (Mr Glassberg) I assume, and I have not got a calculator with me, it is the number of transactions made. No, it cannot be that.

  159. It tells you what the cost per pound received is but the transactional cost is £700 and I wonder how that relates to the so-called £3 saving. Is that the cost? It would actually cost £703 if it was a paperwork system but it is costing £700? I do not understand what the figure is and how it relates to the savings. It does not make sense. Not only that but—if I might just finish—Table 17 is probably the origin of the £700 plus figure. Somebody has aggregated together the £614 for individuals and the £99 for employers and made it just over £700. That is the only way I can see the £700 figure has been derived. Why should those two figures be aggregated because they relate to two separate classes of people?
  (Sir Nicholas Montagu) Table 17, Mr Trickett, is about payments—

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