Members present:

Mr Michael Fallon, in the Chair
Mr Nigel Beard
Mr Jim Cousins
Mr John McFall
Kali Mountford
Mr James Plaskitt


Memorandum submitted by the Inland Revenue

Examination of Witnesses

DAWN PRIMAROLO, a Member of the House, Paymaster General, HM Treasury; MR DAVE HARTNETT, Head of Revenue Policy, and MR STEPHEN BANYARD, Director, Local Services, Inland Revenue, examined.


  1. Minister, welcome back. Could you identify yourself and your officials, please?
  2. (Dawn Primarolo) Good afternoon, Chairman. It crossed my mind that it must be Wednesday and it must be time to visit the Treasury Select Sub-committee again! I would like to say it is delightful to be here. Can I introduce Dave Hartnett, who is the head of revenue policy and a board member, and Stephen Banyard, who is director of local services.

  3. As you know, we are basing this session on the report that has just been presented to us which is entitled "The Government's Expenditure Plans". This is the main departmental report, as I understand it?
  4. (Dawn Primarolo) The main report is the Revenue report which is published in the autumn. The last one was for the year ending 31 March 2001, and this covers specifically additional information about the PSA targets as a wider departmental report as well.

  5. I am a little confused because, when the main Committee took evidence from the Treasury on the review of departmental reports, we were told the new format of departmental reports would apply to the spring 2002 departmental reports, and the aim was to publish these in April, so this has come out a bit later but it is still called "Expenditure Plans"?
  6. (Dawn Primarolo) Yes. It is late because the Budget was late this year as well. Normally it would follow straight after the Budget which we would expect to be in March/April. The Budget was exceptional this year.

  7. But this is the departmental report?
  8. (Dawn Primarolo) It is the PSA targets.

    (Mr Hartnett) It lays out the Inland Revenue expenditure plans and our performance for the previous year, whereas the report published in the autumn is the report of the Commissioners for the Inland Revenue and measures our performance for the year against our unpublished internal targets as well as the external targets.

  9. I understand that and I see what it does. It is just the title itself that might reflect on future years. Just calling it "Expenditure Plans" does not do justice to it.
  10. (Mr Hartnett) Maybe we were remiss. I am sorry if we were.

  11. In the introduction the Chairman of the Revenue says that the report shows real progress. In what areas do you think the Revenue has made "real progress"? You have had responsibility for some time now. In what areas have they made real progress?
  12. (Dawn Primarolo) If we look at specifically the targets that were set, the individuals who set accurate terms, the percentage of inquiry, satisfactory standards and the risk base in the context of the rapidly changing structure of the Inland Revenue and the extra workload that we have taken on, for instance, the growth in employment has meant that with no growth in our staff the workload is much greater, my view is as the Minister is that I am satisfied with the results in one target - these are mainly new targets being reached - one just being missed and the second equalising our performance in the year before but, naturally, I asked Revenue to look specifically at the targets in reaching those targets and what we needed to do to improve and continue to improve. So perhaps if I could say, on the target which we narrowly missed, the risk selected for cases for inquiry, the Inland Revenue have now introduced a new and more consistent and I hope systematic approach to using risk and research teams, and what we are looking for here is that, with a better approach and learning why we did not reach our target, we will improve in subsequent years. In the target that we missed which is to do with the quality of working cases, although these equalled last year's performance, naturally we want to see a year-on-year improvement. Now, resources were stretched because of the increased workload, but on quality what the Inland Revenue have now done is introduced a new improved system from April of this year which includes greater management involvement in helping staff improve; also introducing a broader set of targets to support better quality, which I hope we will see feed through in 2003/4. On the risk-based inquiries, the risk and research teams are obviously gaining experience and continuing to be trained and also learning and comparing practice by selecting cases and, where we can, looking at practice in other countries. For targets that are targets that we maintain all the time, I looked slightly wider as well to make sure that performance was being maintained. For instance, if we looked at the PAYE quality for more complex cases, we can see that there is a steady improvement from 1997-98 through to 2001-02. The target was 89 per cent and we are at 90 per cent achievement, and for proposed monitoring not only have we shortened the number of working days that we are to complete this post monitoring from 28 days to 15 but we have also continued to exceed our targets. So what I have done is, in looking very carefully where I can as a Minister, and obviously in a vast organisation I need to focus where I can, ensure that the quality of the service to the customer in a changing environment is improving and will continue to improve and what we can learn from not having reached our targets in some areas this year.

  13. We are going to come to some specific targets in a moment but one thing that leapt out of your report on page 13 for 2002-3 was you said, "The successful introduction of the new Child Tax Credit and Working Tax Credit is the Department's top priority for 2002/2003. As part of the preparations, we will be taking the opportunity to clean up our computer databases...". What does that mean?
  14. (Dawn Primarolo) Some of the systems that the Inland Revenue operate, if we look at, for instance, the records we have on temporary National Insurance numbers, the duplication of National Insurance numbers and sometimes the National Insurance numbers are just wrong, and some of the information is out of date - for instance, the address that is recorded against the National Insurance number. Obviously with something like new tax credits which require to be cross-referenced with the National Insurance number what happens is that it causes either delays or incorrect information to decisions being made so we need to continue to clear that database. It is really a question of the database now being expected to do more than was originally intended and, therefore, needing to be improved. If we take the PAYE database, which is also crucial, the IT system for this was delivered in the mid-1980s and was built on a regional basis, and we needed at that point in time a national database but it was not possible - technology did not enable the Revenue to develop that. The problem is now, because we have the regional structure, it is increasing the problem where, for instance, people move, so we need to develop the technologies and to clear up the database to help us overcome the effect, for instance, of not having a national database and moving towards that whilst keeping all the information we have on the regional database as well. This means that we will be able to match our records and improve the elimination of duplication of material. For instance, where somebody has multiple employment, which is something we are seeing a lot now, and they work in a number of places, the way we collect the information on the old system of regional databases does not always lend itself easily to making sure we have a complete picture of that individual but we need that for the new tax credits assessment, so we are moving not only to a new database for the tax credits but, as we say, cleaning up the database. Another example would be self assessment returns where we have an address for that person but in the meantime they have moved and they have not told us, and when their self assessment return comes in it is a different address and it is not always cleared down through the system so we have a correct address. I am sure you are aware there have been problems where people perhaps have not been sent reminders when they should or they have been sent penalties to an odd address that has eventually caught up with them even though they have made their return. So it is the interaction of National Insurance and PAYE with our central database and making sure we can clear through the whole system accurate pictures of people's employment. It is historic in the sense of each time the Revenue have developed databases that were the best that could be done at that time and, as we move on in terms of the demands from our customers, they do not always provide the information our customers want - or, indeed, that we might want to give our customers the best service.

    Mr Beard

  15. In the PSA target which was to deliver year-on-year improvements and the number of individuals in businesses who comply with their obligations and receive their entitlement, the tables on pages 9 and 10 show that the two areas where the Inland Revenue have failed to meet targets are on inquiry work where the target was 91 per cent fully satisfactory standard, and the outcome is 88 per cent, but then quite a number on processing and tax credits, working families' tax credit, disabled persons' tax credit, where there is a substantial fall in the actual achievement compared with the targets. Why is this so?
  16. (Dawn Primarolo) Are we talking about the applications processed within five working days, where there was a target of 95 per cent and 87.5 per cent was, and then the target now is 90 per cent?

  17. Yes, that is right, and also for the working families' tax credit applications calculated correctly the target was 93 per cent and the achievement was 87 per cent?
  18. (Dawn Primarolo) Yes. As the working families' tax credit and disabled persons' tax credit was developed out of the information we had on family credit, I was involved as a Minister in setting very high targets and I thought it was important that we improved on the service that had been offered in family credit. What happened, and this is not the first year that we have missed this target, was that in the first year the Revenue were required to reassess how they processed the claims: to look at relocating and putting more staff in, and trying to push an improvement to reach the target of the five working days and the correctly calculated and, given that in a sense our staff are constant but the demand is growing, in the second year we missed the target again and the figures are here. The advice from Revenue to me for working families' tax credit is that we had no more ability in the system to re-direct staff without some other area of our service declining and that there was a real danger in terms of staff morale. If you set a target that the staff can never achieve that was recognised, then to keep that target there we were in danger of even their achievement target reducing so, after very careful consideration and considering the moving to new tax credits, we thought we would set targets again as high, bearing in mind if you want staff to hit a target you have to give them a reasonable chance of them doing that without it affecting morale. Despite the fact I realised it would not look very good to reduce the targets, I took the decision to agree that those three targets should be marginally reduced and we would want to see improvement closer to those targets, naturally monitoring as closely as possible how well we are doing in that area, and it requiring quite a substantial change in relocating staff if the problem were greater than we had anticipated, and I would then need to take decisions about other targets if we were moving staff around. In summary, therefore, it is a balance between keeping the pressure on to deliver the highest of services where staff are committed to that recognising the constraints and really having to take the decision where I was endangering even what we might achieve in terms of morale if I maintained a target that I did not honestly believe we could achieve at this stage. So I decided to make a clean break of it and rebalance, if you like, our targets. I think that is regrettable but realistic and I hope through that we will be able to steadily improve and return and build on our original targets.

  19. So what has actually been done to ensure the new target will be achieved?
  20. (Dawn Primarolo) Clearly staff training and monitoring the volume of the work that is coming in, ensuring that the material is dealt with very quickly and adequately, and our staff also are dealing with the range of tax credit inquiries, and we need to make sure they have that balance across the piste. It is very difficult in fairness to the staff to ensure that they are given the tools to make sure they can do the job properly and then the targets are set realistically within that and they are supported and encouraged and training provided within that. So there is a continuing monitoring of that and I am regularly briefed by the divisional directors in terms of what is happening in that area. Everybody agrees, and though staff understand this very clearly, it is very important to get these decisions out as quickly as possible because it is payment of money to people.

  21. I understand what the answer is but, given that you are reducing the target and it has proved difficult without a substantive change-around of staff, is the present PSA target still relevant? It talks about delivering year-on-year improvements with a number of individuals and businesses who comply with their obligations and receive their entitlement, so in this range that has not been achieved, and it looks as though it is going to be very difficult.
  22. (Dawn Primarolo) It is going to be very difficult to achieve but the staff were improving their performance to reach that target; there is improvement within that. As I have said, I had to take the decision that, if I have set the target too high initially, I would not see the year-in-year real improvement and that is obviously very important -- that the 87.5 could slip back. I hope that the staff will see that there is an appreciation that they have been doing their best, and that the new management team will assist them and work with them to continue to improve that, but I really think it is not really fair to set targets that people cannot achieve. If there is any criticism I suppose the criticism perhaps is of me, the Minister, in being rather too optimistic about what could have been delivered in the first place. Obviously I need to account for that to Parliament and to yourselves in terms of why I have taken the decision to lower it. I hope they will reach those targets soon and when we move into some new tax credits we will be back to a level that is reasonable, but there is year-on-year improvement.

  23. What was the year-on-year improvement? We do not seem to have that figure.
  24. (Dawn Primarolo) Forgive me, we have not got the figures here but perhaps I could let you see the performance against those three targets. I would want to say that the staff are working very hard and this is not a criticism of them in delivering a new system, but I would be happy to let you see that. It seems to me that is crucial - to keep pushing forward even though it was not a year-on-year improvement on the PSA target.

    Mr Plaskitt

  25. Roughly how many WFTC applications were there in 2001-2?
  26. (Dawn Primarolo) We are running at 1.3 million now. I think there was something like a 17 per cent order of increase between August 2000 - I can send you the figures.

  27. An approximation will do for the purposes of this question. So the table which shows 87 per cent calculated correctly suggested about 150,000 were wrong?
  28. (Dawn Primarolo) I am sorry?

  29. The table shows 87 per cent calculated correctly, and you had about 1.3 million applications, so if my maths is right about 150,000 or so were wrong?
  30. (Dawn Primarolo) Yes, initially, but that could be for a whole range of reasons. It could be that --

  31. Are they serious errors? How bad is that static?
  32. (Dawn Primarolo) They would range from not very much to being on the border between how much the credit was set at to perhaps people being refused credit when really they should have received it, and that could be for a combination of reasons. It could be that, for instance, all the information was not there and more should have been asked for rather than a refusal.

  33. In order to get up to the 93 per cent target on that presumably you need to do a fairly good analysis of the errors to find out of what nature they were, therefore what you need to get back to target and that work is in hand, is it?
  34. (Dawn Primarolo) It is because that is partly linked to whether or not the advertising and the information that is being provided to the claimants, for instance, is as easily understandable as it should be, so we are sampling on I think it is a quarterly basis to look at exactly what is happening there, and that will feedback through the management structure. It may be our communication strategies: it may be the forms are not clear enough and we need to improve there: it could be just straight error by the tax credit office itself, and this was an area that was covered by a recent NAO report in terms of looking at what were the errors and where they should be picked up, where it was our error for one reason or another and what type of error. So yes, we will do an analysis of why this is occurring to see where the improvements could be made, and that is why I made the point about improved training, what the management team are doing in terms of analysing this work and, therefore, whether there are some policy implications as well, or advertising or for applications - whatever.

  35. So there are around 1.5 million working family tax credits to be handled. What is the disabled persons' tax credit? 100,000 or something?
  36. (Dawn Primarolo) Something in the region of that.

  37. Therefore when the pensioner tax credit comes in next April, which the Revenue handle -- ?
  38. (Dawn Primarolo) No. We do not do the pensioner tax credit. The new tax credit that supercedes the disabled persons' tax credit and the working families' tax credit goes on to a new system, and clearly what we have been able to do there is learn from all our experience, both on family credit and working families' tax credit - the fact we have moved to an annual assessment and we collect the information we need now rather than what the computer system that we inherited allowed us to, and it should be far more accurate in terms of its returns. Also, with the new tax credits we rely on information - and that really goes back to the point about needing the clean data - that is already in the tax system, so it is people who ask for their P60s, for instance, and how we determine how much they have earned and what their obligations are. But the pensioners' tax credit is not us.

  39. Who handles that?
  40. (Dawn Primarolo) DWP. It is a pensional credit: it is not a tax credit.

  41. Yes. I know it is called that but five million of those are going to have to be administered eventually, so are you in communication with that Department to pass on any lessons learned in your experience of handling credits?
  42. (Dawn Primarolo) Yes. We would have worked very closely in terms of sharing experience on the development of the system and, as far as I am aware, DWP has been very closely involved with the Inland Revenue in learning from our experience with the working families' tax credit and, for instance, the children's tax credit, and how we run our systems and the IT information we collect and the targets we use.

    Mr Cousins

  43. Why are there not any targets for the take-up of the tax credits in the report?
  44. (Dawn Primarolo) The issue is the information that we draw on to determine the potential take-up so we are drawing from a number of surveys that do not necessarily have the information that we particularly need - for instance, we draw on the family resources survey, the family expenditure survey, the labour force survey and the families and children survey. Firstly because of the time lag and, secondly, because they had not asked - not unreasonably because it did not exist - "Were you claiming working families' tax credit? Do you think you are entitled to?", in order to see very specifically how many potentially could, because we only have a rough idea and therefore we could measure take-up, we have been working with the controllers of these surveys to develop questions that households would also answer which would give us much more accurate information so we could move to a position, particularly with the new tax credits, of what the potential population would claim and then we could measure how many had claimed and, therefore, where we needed perhaps to do more work. At the moment we have to rely on rather cruder data supplemented by our own research and there is no one place that all this information is held. When we move to the new tax credits, we already have - because we have the working families' tax credit and the disabled persons' tax credit - the information that DWP would have that would be relevant, a more accurate idea of the potential population which is 5.25 million households. So there was really the problem of finding data that we could properly measure it against. Looking at the question of that take-up, this had not been done before, and again there is a time lag between us commissioning the work to inform that; it is trying to get a much more accurate picture of the breakdown regionally, geographically and between different communities if we can to see whether there is a shortfall therefore we need to refine and develop better communication strategies for the take-up.

  45. So what is your rough idea of the take-up rate of working families' tax credit?
  46. (Dawn Primarolo) We think it is round about 1.3 million out of a possible 1.5, so is that 70 odd per cent.

  47. You would not care to share with the Committee, obviously not verbally now, how those figures have been arrived at? The 1.5 figure?
  48. (Dawn Primarolo) Yes. It is a best estimate but there would be no problem about that.

  49. Some estimates show a take-up rate for working families' tax credit of only about 60 per cent.
  50. (Dawn Primarolo) Some of the figures quoted are out of date and the figure you are quoting was looking at the first year of operation, whereas the 76 per cent I am using, the estimate of 1.5 million, is where we were at the last quarter because these figures are published every quarter. We follow the sequence we inherited from DWP but we can certainly do you a note on that. What we can say is that in the first year of operation of working families' tax credit the take-up was higher than the first year of operation of family credit, and we are running considerably in advance of family credit now. But we can put a paper together for you on that, no problem.

  51. But, Minister, those of us who have been around a long time - and I include myself in that category; I do not extend it to you - will recollect that the family credit was one of the great take-up disasters of British public administration, so the fact you have done rather better than that is almost unavoidable, is it not?
  52. (Dawn Primarolo) I think that the question of take-up, if I can focus on that, of working families' tax credit is something that we are paying a lot of attention to and we need to have much more understanding of. We do know, for instance, though it is very sketchy, that the take-up is very high amongst those groups who would benefit the most and would get the largest payment. We are not sure why people who are entitled to claim it do not; where they are; how big that group is; and what we need to do is to refine our communication particularly to get to those people.

  53. When we are looking at the future of general employment tax credit that is to come in next year, that is the 5 million plus target group, will it not be essential to have a strong sense of take-up and a strong commitment to targets for that?
  54. (Dawn Primarolo) Yes, I absolutely agree, but the difference also is that we know the people who are claiming the child tax credit which is the tax relief, and that accounts for a very substantial percentage of the possible population for claiming new tax credits. We already know those who are claiming the working families' tax credit and the disabled persons' tax credit so we can move them straight away, and that accounts for a very large percentage of the just over 5 million people. We know from our take-up rates for the self-employed, where of course there is a year's time lapse because of self-assessment, the potential number there so what we have done is we have commissioned research to try and measure where everybody else is if they are not known in the tax system and how we get to them. So we are working on trying to deliver exactly the point that you are making: what is the potential and what is the take-up.

  55. This month the child premium in working families' tax credit went up by 2.50 a child. Did you write to all the people receiving working families' tax credit to explain that the premiums had gone up and that people would be getting more money, or will it just come as an inplexcable surprise to people when the money comes through?
  56. (Dawn Primarolo) When they reapply they will be informed. Tax credit follows the family credit level, is set for six months and is non-interrupted, so the increase goes to those people who are applying at that time. It takes time to work through the system. Those currently in the system --

  57. I accept that but one way of increasing take-up is to create a warm feeling about it amongst the people who are receiving it. This month an extra 2.50 was paid to everyone on working families' tax credit for each child but, if you have not communicated with the people receiving it that that is the case, you are missing an opportunity to build a sense of commitment to it?
  58. (Dawn Primarolo) Yes. We have survey data which shows the attitude of those who are claiming working families' tax credit to it and the warm glow is already there, but the point about writing to people is they would get that written explanation when that money arrived when the claim was made, and that would be explained to them. We do that.

    Mr Beard

  59. Several representatives of the business community have grumbled about the efforts they are having to put into administering the working families' tax credit and the CBI have been grumbling as well. If you are looking into this, what do you say is the justification for it and what could be done about it?
  60. (Dawn Primarolo) We have consultative committees working with business all the time on the functioning of the working families' tax credit, particularly, for instance, because we can put the business in funds if there were to be a shortfall traded off against their National Insurance and PAYE. Again, the surveys which I do not have here but I am happy to send them to the Committee, when we looked at for instance how satisfied businesses were with the service they were receiving and the support and advice from the Inland Revenue on working families' tax credit and disabled persons' tax credit, they are very satisfied. What they are dissatisfied with is that some businesses do not want to do it in the first place, so it is a slightly different question. Given that they do deliver through the pay roll, however, the working families' tax credit, all the information and the survey data that we have is that they are very satisfied with the speed, the quality and the support that they receive from the Inland Revenue, if there is a problem for them or they have a query or they need to be put in funds. We had a target for how quickly we should put them in funds once they had requested it, and all those are being delivered. I am afraid I did not read that information in connection with today's hearing but I have seen it over the last few weeks and, again, I would be happy to share that with the Committee in writing. We must not be complacent about this. I could make justifications, which are numerous, about the benefits to employers, how people are telling us they have been able to stay in paid employment, how they have returned earlier to paid employment or been able to return to employment, but nonetheless we constantly look across the taxes - not just the working families' tax credit - at what we require of employers and whether we are doing it in the most efficient way with the lowest possible requirements from business to make the system work, and the new tax credits we worked very closely with and were able to take out a number of things that we no longer require them to do, streamline the forms and reduce the number of forms considerably for employers.

    Chairman: That takes us neatly back to customer service, I think.

    Mr Cousins

  61. I did take your earlier point that staff must not be demoralised by being set targets that are unachievable, but equally I think Parliament is owed a bit of an explanation if the targets are not being achieved and you change the satisfaction index to one that is -- ?
  62. (Dawn Primarolo) Can I say that is a very fair point and one that I have asked as Minister. It is all very well to measure but if you measure something that is slightly different, how can you have a proper picture of whether there is improvement? I think this goes back to something I said earlier on about looking at some of the underlying quality - the internal targets that we also operate, how quickly firms are answered, whether people are given the correct advice, for instance whether our new tax advice centres are well used, whether people appreciate the service, whether we are available when people need us to be available - and that has been the development in looking at that and saying that the Revenue firstly is doing new things. It does the National Insurance, it has the tax credits, there are more people working, people are asking for more information, the nature of their lives is changing, and so there is the development of the call centres in saying whether people can contact us by phone, whether they can do things on-line, the hours we are open - all of this information as well as our PSA targets we are concentrating on because it is about the quality of the service we are delivering to customers as well as the turnover, the quantity tests. I am quite keen that we can deliver quantity as long as we do not lose the quality side of it, and are improving on the quality as well.

  63. What are the measures, then, that are consistent that can be used to test this?
  64. (Dawn Primarolo) We measure by customer survey and tests which are looking at the ease with which people completed the process, contacting us, whether they found it useful, whether they got the information that they wanted. We then had to look at the new business we are taking on like National Insurance and a different set of requirements and measurements about whether people were getting the information they wanted and whether our targets reflected that. We also did survey work by phone. What we are trying to do is get a much higher response rate to our queries. This is about quality, accuracy, how people felt about the way they were treated by the Inland Revenue and whether our staff were helpful. We are also looking at questions that focus on the process relevant to particular groups because the service is not exactly the same to every single taxpayer in what they require from the system. So whilst maintaining the examples of the quality, more complex PAYE targets and looking at our post monitoring which is bread and butter and underlying targets, we are monitoring those at the same time as we are saying "How can we take on and measure the new business?" It is an absolutely valid point and one I am certainly making: when will I get to a point where I am at a constant and have all the new systems in place, where we are measuring basically more or less the same thing every year to show that improvement - and that has been a bit difficult of late.

  65. But within these new measures of customer satisfaction, and I can see why you as a minister and we as Parliamentarians would want broader and better measures, will it be possible to have consistent information on the old measures that enable us to see change over time?
  66. (Dawn Primarolo) Yes. If you look at the key customer service targets which have been measured throughout, they would be response times on post, telephone, personal visits - for example, post turnaround and whether that has improved, the nature of the telephone service and whether that is improving - and those are constants --

  67. Is that something you would feel able to share with the Committee?
  68. (Dawn Primarolo) Yes. This goes back to the point the Chairman made at the beginning which is how can the Committee know if it has to look across two reports? These are our headline PSA targets; these are our internal what we are monitoring, over and above the sort of strategic targets that Government is aiming for. We will extract the ones that are relevant and send them to you.

  69. There is in the book that we are working to on page 12 a specific reference to reviewing the way you deal with pensioners and students. I have a constituency that seems to be largely made up of pensioners and students, and the pensioners are terrified by contacts with the Revenue and the students who have spasmodic income, usually low and usually taxed at the emergency code, are extremely angry with the Revenue. What can be done about this?
  70. (Dawn Primarolo) Both of those issues we are working on. Starting firstly with pensioners, it is true that there is a general reluctance sometimes for taxpayers of their own volition to contact the Revenue for fear that there may be something they do not know and they come out of the telephone conversation worse than they perceived they went into it, and it is a matter of trust and getting across to them that we are there to help. On the pension issue, we are working very closely at the moment with Age Concern, with the low income tax reform group and a number of other organisations who have made very strong representations to us about pensioners' contact with the Revenue, and we are working through with them changes and improvements that we should make. For instance, we do home visits now if a pensioner would prefer that for us to help them fill out a form or if they cannot get into our nearest tax inquiry office, and we have looked at how we can get pensioners out of the self-assessment system and whether the numbers are too large there. A lot of pensioners need to be reassured that they do not need to have contact with us, but we get a lot of inquiries from pensioners saying they have not had a self-assessment form, and there is absolutely no reason they should have had one, but they are worried. So we are experimenting with things like video links from libraries which people can go in and use; we did one I think in Alfreton in Derbyshire, and one in Wick to see whether accessibility could be improved by video links into the inquiry offices and maintain confidentiality. On the question of students, I could not agree with you more. Students are the taxpayers of the future and to make them cross seems rather short-sighted, in terms of making their first contact with the Revenue not a good experience and possibly shaping their attitudes to the Revenue in the future. Again, therefore, working with the low income tax reform group we have set about trying to improve, for instance, the guidance and the forms for students. We have set up a student website; we have looked at and produced information packs for student welfare advisers; we are looking to forge better links between our local inquiry centres and the advisers; we plan to introduce an on-line student tax calculator; and we are working very closely with a number of organisations to see what other things we could do to improve in this area, and we have a lot of work to do. That is a reasonably recent development in terms of the detailed work. Again, either now or later, if the Committee would like more details, then we are happy to make sure that is provided to see how we are developing that sort of particular set of circumstances.

    Chairman: Thank you. We need to move on to the take-up of electronic services.

    Mr Beard

  71. This is rather a grand target, Minister: "Ensure by 2005 that one hundred per cent of services are offered electronically, wherever possible through a common Government portal, and a take-up rate for these services of at least 50 per cent", and yet, reading the press, the service has virtually collapsed. What is the problem and what is being done about it?
  72. (Dawn Primarolo) What would you like me to deal with first? The fact that self-assessment is off-line and the issues around that? Because what we offer on-line is wider than just the self-assessment, as crucial as that is, and the rest of the stuff is on-line. It is about contacting us, not necessarily whether all transactions can be completed, and we are currently at about 40 per cent in terms of the information and access that we can offer on-line. I could give you those areas but perhaps I should turn first to the question of the self-assessment and the fact that it is not on-line and has not been for over two weeks now. I can explain to the Committee as much as I know but inquiries are still continuing and I am sure this will be a matter you will want to come back to. Would you like me to explain what has happened?

  73. Yes.
  74. (Dawn Primarolo) On the weekend of 25 and 26 May four customers contacted the Inland Revenue's electronic business unit help line to report seeing information on another person's return whilst using our on-line self-assessment service. The customers could also add or otherwise overwrite information on that person's return, and we then received notification that one of the customers had contacted the media simultaneously. The Inland Revenue withdrew the on-line service because clearly confidentiality is paramount - it is the whole foundation of the tax system. We then received a further nine contacts from customers, so we have a total of 13 in all. Clearly, not just for the taxpayer but for the whole credibility of the system, confidentiality and the maintaining of it is crucial, and we needed to know exactly what had happened and why before we restored the service, otherwise there would be clearly a question of confidence for the taxpayer on that service. What has happened is the Inland Revenue is working with its strategic IT partner which is EDS and with the e-envoy's office, and we have brought in an independent specialist internet security company because we needed to know exactly what was going on. The first thing we needed to establish was whether or not the system had been hacked into - which it had not. I am told by the Revenue that the weakness in the system, and this is a software issue, allowed an internet service provider or a company supporting to store the unique identifier for some taxpayers in a way that was unintentional, and this was what enabled the access. This information never should have been stored: it was not a malicious act: it was not designed: it was something to do with the software: and obviously, as I have said and I cannot stress it enough, this is very serious. The Revenue, therefore, have taken a two-pronged approach: firstly to fix the problem, which is a software issue and, secondly, to improve the system, if you like fitting alarms to the system, so that if one taxpayer did or should ever be in the position of viewing another person's tax data then the system would immediately deal with that. Also I think it is right that we should do a thorough audit now of the on-line service, and I should be satisfied as well as the Revenue that the system is now completely secure before we return it on-line. I will not, and I know that Revenue will not ask me to, return the service until that can be delivered. Sir Nichlas Montagu, who is also the accounting officer, because the PAC will have an interest in this, will be writing to the Chairman of the PAC, and I wondered Mr Chairman whether you would think it appropriate that we can return to this when we have a full report? I understand you will be visiting Inland Revenue to look at the on-line services so you will have a proper and thorough briefing then as well about where we are. To say that I am erring on the side of caution would be an understatement; this is not unique unfortunately - it has happened to other on-line providers - but it is something we absolutely have to settle and make sure of so we can take the work on SA on-line forward. It is a great disappointment because we have vastly improved the service and usage was already higher than it was at the same time last year, but it needs to be sorted and I cannot add any more than that.

  75. Is it only individual self-assessment?
  76. (Dawn Primarolo) Yes.

  77. The other parts, corporation tax and everything, are working all right?
  78. (Dawn Primarolo) Absolutely. They are perfectly secure and have been checked. It is just this and it is to do with the software. To be honest, I could not myself explain it to you; it is quite a technical issue but we could not have foreseen it.

  79. It does seem to have been beset by problems because the take-up of this was well below what the target was. It was a tenth of what the target was.
  80. (Dawn Primarolo) Yes. Ironically the take-up had vastly improved this year and obviously one of the issues when we are clear on the security system - and I hope we will be soon - is that when we restore the line we will have to address again the question of take-up, because it has been very well publicised and obviously people cannot get on-line at the moment, so they know it is down and they know why.

  81. I do not want to rub salt in the wound but we saw the Irish system a few weeks ago.
  82. (Dawn Primarolo) Yes. The irony was I only saw you on the Wednesday and this happened the following weekend.

    Mr Plaskitt

  83. It was never cause and effect?
  84. (Dawn Primarolo) I did not mean to imply that!

    Mr Beard

  85. The question really is whether we are comparing notes because, first of all, they had a higher expectation of take-up than we seem to have and their systems seemed to work.
  86. (Dawn Primarolo) Well, I think we discussed when I last visited the Committee some of the differences with the Irish system and the discussions that had taken place between our officials and the officials in Ireland, and our system was going well, we were increasing take-up and it was a vastly improved system this year. Now this has occurred and it cannot go back on-line until we are absolutely satisfied. As I have said, I hope that will be soon and I think the Committee would be entitled to, and we would be happy to provide, a full explanation of how we think it happened and what we have done to secure the system.

  87. Is this interruption likely to have an impact this year on the number of people filing by the due date?
  88. (Dawn Primarolo) No.

  89. And will special steps be taken, given this will have diminished confidence in the confidentiality of the system, to reassure people?
  90. (Dawn Primarolo) Yes, of course. We will have to do that and make sure that we have contacted them and explained all the issues.

    : Chairman

  91. We may have to return to this. Our visit to the Revenue has been postponed at the Revenue's request until the service is operational.
  92. (Dawn Primarolo) Well, if you decide you want to go before that, then that is for you to say to me and me to say, if you thought that would be helpful, because there are other parts of the service. I am not expecting this to take a long time.

  93. But if we go you are saying we will see something working?
  94. (Dawn Primarolo) Yes, I sincerely hope so. I am reassured you will.

    Mr Plaskitt

  95. Quickly I want to look at another of the PSA targets, productivity gains, where you say in the report that you did not get to the target for tax processing work. Why do you think that was?
  96. (Dawn Primarolo) Increased workload on the staff that were already working. If we measured our increased workload and had a way of calculating that in this area and then measured against it, and that is not the way we are required to do it, we would be demonstrating very clear levels of workload increase and delivery of the system, but we continued to work with the same resources with greater demand on the system basically in that particular area, and to make efficiency savings would have led to a reduction in the service. You cannot have workload increase in proportion and at this point make those savings.

  97. Generally speaking, however, in any sort of business or enterprise, to get productivity results, you have to match staffing levels and resources with workload, and there is an optimal point. If the number of taxpayers is going up quite steadily and you have a fairly static work force or related work, is it the case that you are not getting a productivity because there is no chance of that work force meeting that demand, or are you going to have to increase the work force, in fact, to deliver productivity results?
  98. (Dawn Primarolo) Firstly, and we touched on this earlier on, there is this question of quantity and quality and our targets go, of course, across both in the sense of the productivity targets. In processing the returns, what we need to do as well is improve the quality alongside that, so in improving quality we have greater workload, and we have to see that alongside the productivity gains. We met our productivity targets on self-assessment but not for Pay As You Earn. We are doing more work on this, and it ties back to this question of not having clean data and having to chase a lot of information. If we had had it correct in the first place, that would have led to us responding and being able to reach all of these targets.

  99. Have you got quality targets built into the productivity measure, because I understand from the report that you are measuring productivity by a fairly simple equation which has two variables in it, the amount of work coming in and the number of staff?
  100. (Dawn Primarolo) We do have a quality measure alongside it, and our quality measure I am told went up by 1 per cent over the last year. Again, we can supply that information to you. It is really a straight choice here and a very difficult one because we are being asked to improve, rightly so, the quality of the service that we deliver - and this the problem of the Government making choices, where it has to, about spending. So with an increased workload with an improvement in quality it meant we did miss productivity in this one area. But, if we look at the Department across the piste, given the huge number of transactions and communications that they are dealing with as well as what the Revenue collect, I am satisfied that the Department is doing more than its level best, and that the people are working really hard to maintain both quality and quantity and produce earnings and productivity savings.

    Chairman: Can we turn now to the issue of non compliance?

    Mr Cousins

  101. Is it your intention, Minister, to publish at a reasonably early date the counter fraud strategy that is referred to in your report?
  102. (Dawn Primarolo) What we are looking at is a high level strategic approach to counter fraud and evasion, and we have already had one attempt at this with the Grabiner report in trying to look at it. It is quite difficult to have specific targets when one is dealing with, for instance, profits, and the Department looking at raising corporation tax there but yes, it is the intention to have that strategic approach to fraud and evasion. I cannot remember exactly how Lord Grabiner phrased it but it is somewhat difficult in some areas, for instance the shadow economy, to calculate exactly what is out there that we should have collected.

  103. Indeed, but my question was not whether you were developing this strategic approach because the report makes it very clear that you are; my question was will you be publishing this strategy at an early date for Parliament to see?
  104. (Dawn Primarolo) Yes. My understanding is that the Inland Revenue Board will be considering these issues and then will report to me, and I think the intention is that that high level strategic approach would be made available.

  105. That it will be published?
  106. (Dawn Primarolo) Yes.

  107. Do you have any idea of timing on that?
  108. (Dawn Primarolo) I do not. Months, I am informed. I still have not had the information through to me but we are talking in terms of months, I understand.

  109. Is it your intention that this strategy should contain some kind of fix on the size of the shadow economy, precisely these issues you have referred to that Grabiner raised in his report, and on the level of tax floor generally?
  110. (Dawn Primarolo) Lord Grabiner said that you could not fix how large the shadow economy was. In the specific work he was commissioned to do - I cannot remember exactly his phraseology on this - he said that it was not actually possible to put a figure on what was there to be collected if only you were out there collecting it.

  111. But a range of figures?
  112. (Dawn Primarolo) He even said that a range of figures, given the nature of the shadow economy, was not possible given that we commissioned him specifically to look at that. Then it raises the question of how can we be sure ----

  113. That you are tackling it.
  114. (Dawn Primarolo) ---- that we are tackling it and that we have an approach, although we may not know exactly the quantity but there is no doubt that it is out there, of increasing our effectiveness in that area. It is somewhat different, for instance, if we look at cigarettes. Customs and Excise know how many cigarettes are produced because that is what they collect information on and, for instance, when you are dealing with company profits it is somewhat more complex and not necessarily an exact science. What we need to have and what we are working to is that strategic approach that demonstrates how we are countering fraud and evasion.

  115. Surely the Joint Shadow Economy teams which are now at work in various parts of the country must be producing some kind of indicators of the size of the problem?
  116. (Dawn Primarolo) What they are engaged in is encouraging and bringing back into the formal economy those who have been operating outside of it and measuring the success of companies, self-employed people in fact coming on to the books, if you like, does not necessarily give us an indication of how much more is still out there, how many people are actually on PAYE but might also be working in the shadow economy as well.

  117. Is it intended to have a report on the work of the Shadow Economy Teams?
  118. (Dawn Primarolo) Yes. I think that I have just seen, which is coming to the Committee as we promised, a further report - I think you asked me to do it on a regular basis - on the closer working and the areas of activity and what was being produced in those areas. I think that will be with you soon. I think I signed that off yesterday.

  119. Will the review of, for example, non-domicile status for tax purposes, which the Chancellor announced in the Budget, be fed into this counter-fraud strategy or will that be a completely separate exercise?
  120. (Dawn Primarolo) That is a separate exercise under the review of residence and domicile and at the moment we are in the position of taking written submissions and ourselves internally assessing the position with regard to those status and then reporting further to Parliament at the Pre-Budget Report. We are taking that separately.

  121. That is being led by the Revenue?
  122. (Dawn Primarolo) It is.

  123. Thank you. Minister, I am sure you will have seen suggestions that the company, the special purpose vehicle company, which has taken over the responsibility of running the Revenue's tax offices ----
  124. (Dawn Primarolo) The special vehicle companies are also a tax status and I got confused for a moment, sorry.

  125. That company does not itself pay tax because it is registered overseas. Now you will, I am sure, see the public relations problem that results if that were to be the case.
  126. (Dawn Primarolo) Indeed, but, as we talked earlier on, the Taxpayer's Confidentiality Act means precisely that. I have seen the reports but I do not have access to the details of any company information. How do any of us know whether that is the case or not?

  127. Have you asked for an inquiry as to whether that is correct?
  128. (Dawn Primarolo) I cannot. It is beyond my remit as a Minister to ask. We have a care and management division and under the protection of the tax system I cannot enquire of anybody's tax status or returns, individual or company. I am specifically not allowed to do that as part of the protection of confidentiality.

  129. How do you intend to report to Parliament on the work of this particular company and its performance and the profits it makes?
  130. (Dawn Primarolo) I will report to Parliament in terms of its performance in managing the estate of the Inland Revenue. I do not report to Parliament individually on taxpayers. I am not accountable to Parliament and I am not accountable as a Minister for individual taxpayers or companies. The requirements specifically exclude that. It would be an abuse of power if a Minister was able to make enquiries of any individual's tax returns or company's tax returns on any basis and the security of the system could not be protected. That is why the Revenue has Commissioners and they are separate from me and it is their responsibility to maintain that.

  131. In this annual report you will, of course, see that there is a report on the Revenue's use of its assets which shows at Annex 4, page 43, a figure for land and buildings which in the 1999-2000 year was 295 million and which in the two subsequent years goes from six to five and in the current year is shown as nil. That presumably is the impact of that transfer.
  132. (Dawn Primarolo) Yes.

  133. Do you not think some explanation needs to be given on the rate of return, the performance of the company that has acquired such a significant chunk of your assets?
  134. (Dawn Primarolo) Indeed, and this would be a matter for the National Audit Office. I imagine that as they look at every other area of management of any Government department's assets they will look very closely at that and the way that the division of responsibilities are apportioned in Parliament as, as the parliamentary watchdog, they have inquired into many issues, not just in Revenue.

  135. Are you aware of an NAO inquiry ongoing into this?
  136. (Dawn Primarolo) I am not at the moment but NAO would not notify me of such an inquiry. They are not required to, they are independent.

  137. I am asking if you are aware of it. It is not an improper question.
  138. (Dawn Primarolo) I am not, no, but it does not mean there is not, I am just not aware of it.

    (In the absence of the Chairman, Mr Nigel Beard was called to the Chair)

    Mr Beard

  139. The National Minimum Wage, Minister, was being administered by the Inland Revenue on behalf of the Department of Trade and Industry but there were no targets or achievements as to how well you were doing in enforcing it.
  140. (Dawn Primarolo) No. The National Minimum Wage is accounted for within an annual report which is a joint Inland Revenue and DTI report. If you like, the Inland Revenue administer the enforcement of that and the report is available on the DTI website, they are the lead department for the National Minimum Wage. The results in terms of enforcement, this report would cover policy aspects, what activities the Inland Revenue have been undertaking, outputs and explanations. It counts as part of the DTI report but if the Committee would like details of the targets set for 1999-2000 to 2002-03, along with the results achieved for the first three years to 2002, I am happy to provide that.

  141. I think that would be useful.
  142. (Dawn Primarolo) That is the DTI that would be commissioned to do that.

  143. Is it not true that the Inland Revenue will be responsible for measures to improve the enforcement of the National Minimum Wage?
  144. (Dawn Primarolo) Yes, in consultation with the DTI. If we look at the figures that we will be able to supply to you, if we look at the incident of non-compliance identified, it has risen from 20 per cent in 1999-2000 to 36 per cent by 2001-02.

  145. Non-compliance has risen?
  146. (Dawn Primarolo) The identification of non-compliance. That is what we are looking for. The value of arrears of wages identified has risen from 1.25 million to 5.1 million in 2001-02. This information is available and we can make sure that your Committee has copies of it.

  147. Given that response, would it not be a good idea in the future to report it in this report as it is a responsibility of Inland Revenue?
  148. (Dawn Primarolo) Yes, we can consider that. I do not see that there is an issue there. When the National Minimum Wage was set up under the structure that was set up the DTI was the lead department, not ourselves. I do not see why we could not find a way of having that included in some way in the report.

  149. Could you explain what the Integrated Citizen Tracing Facility is? It is on page 25. What is it all about and who is going to have access to it?
  150. (Dawn Primarolo) It is just the Inland Revenue that has access. DWP and the Inland Revenue. It is a new facility to sit above the IT systems. It basically allows us to trace customers using a unique identifier. It is to do things like verify the National Insurance number or references to complete where we only have part names, part addresses or we do not have all of the material that we need. It enables us to check across and to make sure we have a total picture of a taxpayer where we do not have all the information and therefore we cannot provide the service that they would be entitled to.

  151. It is only accessible by Inland Revenue and the Department of Work and Pensions?
  152. (Dawn Primarolo) Yes. It is a pooling of our information to make sure that we have got a complete picture, it is no more than that, so that we can deliver assessments like the Tax Credits and things like that. It is through a statutory gateway.

  153. Finally, Minister, the Valuation Office Agency, one of its major tasks is reported here "as a step on the path to more public acceptance of valuations in Revaluation 2005 [is to] implement the recommendations coming out of the evaluation of the local ratepayer panels pilots". Why is there a need for more public acceptance of valuations?
  154. (Dawn Primarolo) Currently appeals are made against approximately 40 per cent of business property valuations and what is happening is that the ratepayers are effectively using the appeals system to check the valuation accuracy and obviously you then get problems in backlog pressure on the system. Having looked at this, what we think is happening is people are encouraged to do this by rating advisers, many of whom may be working on a no-win, no-fee basis, and clearly this is inefficient both for the valuation office and, indeed, from a business perspective if it is not necessary. What we are looking to do is to modernise the process and to do much more in helping the ratepayers understand how the assessment, the valuation, was reached before they get into the rating list. If they still want to go through the system of course that is their prerogative, we are not going to do anything to prevent that, but we think perhaps there is something that we can do at an intervention level to have more information and perhaps reassure people more at that stage because we do get complaints about how long it takes to get through and hear these valuations, which is incredibly inconvenient and sometimes worse for the businesses concerned.

  155. Of the 40 per cent of appeals how many were upheld?
  156. (Dawn Primarolo) It is a very small percentage. I do not have that but I can find it. It is not close to 40 per cent. The difference is substantial enough to lead us, having analysed the outcomes, to believe this type of intervention would be helpful. I will make sure that you have got that figure.

  157. It would be useful. Minister, thank you very much for another interesting and helpful session.

(Dawn Primarolo) Can I say that since this Sub-Committee started its work I had no idea how much I would need to know about my Department, thank you very much, it has been a great education to me as well. Thank you.

Mr Beard: Thank you.