Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 140-159)


MONDAY 20 MAY 2002

  140. I am not sure this comparison is fair, but we had Mr Broadbent from the Customs and Excise—
  (Sir Nicholas Montagu) A great friend of mine. I am afraid I am not going to name and shame a tobacco company. The Committee can leave now if they want. I am less entertainment value than Richard.

  141. Mr Broadbent certainly seems to deal in much bigger sums of money in fraud than you do. What I seemed to conclude was that the more you invested in trying to catch people, the more people you caught and the more money you saved. As far as Mr Broadbent was concerned, the more money you put in to try to find out who was doing the smuggling and how much was being smuggled, the more you saved the taxpayer. Here I get a similar situation. The more money you put in to detect fraud, the more money you will save and the more money you will recoup. Is that right?
  (Sir Nicholas Montagu) It depends entirely on the area. I shall resist the temptation to say that maybe Richard had more fraud in the first place than we did, because that would be hubris of the highest order and I might regret it when I re-appear before this Committee. There is a dead serious point, which is that Sir John is conducting an investigation into fraud in four different Departments: Health, Work and Pensions, Customs and us. I think this is going to be an invaluable exercise, and I say that as somebody knowing he is quite likely to be dragged back to talk about it. I think that what you may find coming out is the different considerations as well as the common consideration between Departments. This is the age-old compliance problem. In some parts of my organisation, if I put an extra body there, she or he can bring in many times their salary. In other areas, it is less. What we have to balance the whole time in the tax credit office is the imperative need to get the benefit of the tax credits to the deserving claimant as soon as possible with the need to ensure that we do not allow fraudulent claims. There is always going to be a balance for any Department operating with necessarily limited resources. You are talking about choosing between priorities.

  142. Can you anticipate what is actually fraud in working tax credits? How much the taxpayer loses?
  (Sir Nicholas Montagu) The study which we were talking about earlier of 3,250 cases, although small, will give us a better idea, but it is always impossible, by definition. It is like the interesting discussions I have with the Committee on the size of the informal economy.

  143. Continuing on paragraph 3.19, we are not talking huge amounts of money as we were with Mr Broadbent, but on the other hand, 3.19 tells us that you investigated and found overpayments had been made to people yet you did not recover them. Why not? It is a very small amount of money but I get the impression that you found out that £114,000 had been overpaid and you did not claim it back. Why? Or am I reading it wrongly?
  (Sir Nicholas Montagu) Yes, you are reading it wrongly quite honestly. What Sir John is saying in that paragraph is that his example of—

  144. No, I am not reading it wrongly. What I am saying is that overpayments have been made and you have found out that those overpayments have been made but it was not reported to the debt recovery team to get it back.
  (Sir Nicholas Montagu) Yes, that is right. You have it right now, but not the way you said it before. What you said was that we failed to recover it. What Sir John is saying is that the failure to report to the debt recovery team—

  145. It is the same, is it not?
  (Sir Nicholas Montagu) Yes; absolutely. That is why, picking that up, even though extrapolation suggested that there might be 226 cases, 0.8 per cent, in every case now we require our managers to check that the overpayments are reported. It's a `fair cop, guv'. Done something about it.

  146. Again I might be reading it wrongly, so forgive me if I am. Can we turn to your memorandum? In paragraph 14 of that memorandum, it seems to indicate that employers make all sorts of mistakes when they are filling in the P35 form and it also seems to indicate that you do not get the information at the right time. I might be wrong, but I gleaned that the end of the financial year is 5 April, but the form actually asks the employers to put down the results to 31 March, or the other way round. In other words, the form does not cover the time of the actual payments. If that is true, why are the forms and the financial year not the same date? I could be totally wrong.
  (Mr Banyard) It is that the employer reports payments to 31 March if they have paid. The tax year is very slightly out of step.

  147. That is right. What I am saying is that if that is the case and it causes problems, why do you not change the date on the form to the end of the tax year? They would then be the same and it would mean you do not have to wait another year to get the correct information. I could be wrong.
  (Sir Nicholas Montagu) I think you probably are, with the greatest of respect.

  148. Probably; I always am.
  (Sir Nicholas Montagu) Not so; Homer very rarely nods in your case. Think of those employers paying monthly where you will get the payment at the end of April, even if it related to a period before the start of the new tax year.

  149. Are you saying that it does not matter that the end of the financial year and the final date on the P35 are different, that it has no effect?
  (Mr Hartnett) Maybe I can help. Some employers run their P35 to 31 March, others run it to 5 April. We have traditionally allowed that approach, provided it is applied consistently year on year by employers. If I have understood your question correctly, changing the date to 31 March would not help those who worked to 5 April.

  150. No; the other way round. Do not change the end of the tax year, change the form to 5 April rather than 31 March.
  (Mr Hartnett) For some people it is 5 April and 5 April appears on the form. The form is 5 April.
  (Sir Nicholas Montagu) What you are getting from here, with a degree of bewilderment, is a clear message that the P35 relates to payments made by the employer in respect of the tax year, in other words from 6 April to 5 April.

Mr Bacon

  151. I should like to start with some points of agreement about your friend Rachel Lomax and suggestions to her which are unwelcome. I certainly agree with you that she responds very robustly to suggestions which are to her unwelcome. I suggested to her that it might be a good idea if she gave the C&AG a set of Appropriation Accounts each year which were not qualified. Indeed I pointed out to her that if she were unable to do this, she might set a target date for when she was going to do it. It turned out that she was not proposing to do it at any point in the next three and a half years before she was planning to retire.
  (Sir Nicholas Montagu) I find it very depressing that she is planning to retire. It makes me come back to the sense of deprivation which the Committee is obviously feeling about my impending retirement. Being deprived of Rachel within two years is more than any Committee, however vicious, deserves.

  152. The reason I mention that is that I have only been on this Committee since last October. In that relatively short period of time, frankly I have gained a very considerable and healthy degree of scepticism about the Government's abilities to do anything right. You mentioned your friend Mr Broadbent. Just to take him and Rachel Lomax together, Customs and Excise estimates tax fraud to be somewhere between £6.4 and £7.3 billion. Rachel Lomax, depending on which day of the week it is, seems to give a different answer. The Social Security White Paper in 1999 said £7 billion of fraud and error. She now thinks it is £2 billion, but I put down a Parliamentary Question the other day to which the answer was £3 billion and when the Daily Mail picked up the answer to my question—I did not speak to them—they published a little article and I subsequently had several letters from people who had worked as employees in the Benefits Agency talking about the despair they were in, one person resigned through ill health and so on. Of course the NHS, according to Stuart Emsley, who is inside the Department, loses somewhere between 16 and 20 per cent of its budget. That little lot alone comes to somewhere between £15 and £20 billion, depending on whether you take a conservative estimate or not. What I am therefore wondering about is why your level of fraud should be so much lower than all these other people. You have this new tax credit and it seems from the figures Mr Hartnett was giving that you have very few which required action. Why should yours be so much lower than the others?
  (Sir Nicholas Montagu) The nature of Richard's and Rachel's and my businesses is different, which is why I think that Sir John's study will be genuinely valuable because it will bring in Nigel Crisp's empire as well. The plain answer on this one is that we do not know. This is why we have a robust fraud strategy and we have appointed the director of my special compliance office, John Middleton, as the departmental fraud champion. What we are trying to do is to arrive at a much better understanding of the risks, estimating the amount at risk, getting to where we want to be and thinking about how we should then get there. In addition we are doing various piecemeal studies like the ones I mentioned in reply to Mr Steinberg, which will give us a much better understanding of where we think we are with fraud. We appointed a leading academic economist last year as our director of analysis and research, David Ulph, whose name may be familiar to some members of the Committee, and he will be leading the analytical work on the rigorous lines I have discussed. It is an area where, although I would stand by the answers I have given the Committee previously, which were endorsed by Lord Grabiner. All of us recognise we need to do more to see whether we can scope the problem or the scale of it rather more than we have done in the past.

  153. Sir John, may I carry on this subject of fraud and ask you a question? When you referred earlier, in answer to Mr Trickett, to the desirability from your officers' point of view of having access to employers, you were obviously thinking about the business of doing your job of assessing economy, efficiency and effectiveness. To what extent is fraud a component of your desire to have the ability to get in to employers?
  (Sir John Bourn) It is an aspect of it. If you do have information which indicates the possibility of fraud in that aspect of work. As in any other the ability to secure direct evidence is certainly relevant and helpful. I do not base the case that I made simply on fraud.

  154. You base the case on the ability to do your job of reporting to Parliament.
  (Sir John Bourn) To report to Parliament on the disbursement of public money.

  155. You were quite graphic, I paraphrase you, when you said that to say your heavy hand must be stayed is an attempt to push you aside with a false argument. Are you basically saying that you do not think you can adequately, properly and fully do your job of reporting to Parliament on how public taxpayers' monies are spent unless you have the ability at your discretion when you choose to exercise it but the ability to access employers?
  (Sir John Bourn) I am saying that the external auditor of whatever activity needs direct access. It is up to the external auditor to determine the mode, method and occasions on which he exercises it. I think that in relation to this I should have the same rights of access as I have to the Department for Work and Pensions and the Inland Revenue.

  156. Are you saying that without those rights of access it is not possible for you fully to do your duty to Parliament in respect of these expenditures?
  (Sir John Bourn) I do not want to say that all my work in this field would be totally undermined. What I am saying is that the external auditor requires rights of direct access and that he or she determines upon their employment.

  157. If this Committee were to recommend that, you would not have too much difficulty in agreeing with that recommendation.
  (Sir John Bourn) I should have no difficulty at all.

  Chairman: You might even assist us in writing the report.
  (Sir John Bourn) That is a pleasure I could not decline.
  (Sir Nicholas Montagu) I shall be totally hands-off where the Treasury Minute is concerned.

  158. May I ask about the Tax Credits Bill? The Tax Credits Bill includes provision for the transfer of child benefit from Work and Pensions to the Inland Revenue. Could you just say something about what that will entail? How it will work?
  (Sir Nicholas Montagu) I hope it will work very well. The child benefit centre of Work and Pensions is a highly professional organisation of some 2,000 people operating out of Washington in the North East. It has regularly exceeded its targets. It provides a first-rate service. The Prime Minister announced last year that they would join us in April of next year at the time when we acquire responsibility for the new tax credits. Certainly a lot of us are doing a great deal to ensure that the merger goes smoothly. We are talking with the trade unions, we are talking direct to them.

  159. That whole payment centre is moving across under your aegis. Is that right?
  (Sir Nicholas Montagu) Yes; absolutely. For example, a month ago I was up in Durham at their spring school, together with my Director of National Services who is Stephen's opposite number for national services and under whom they will come.

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 5 December 2002