Examination of Witnesses (Questions 20
MONDAY 22 OCTOBER 2001
MONTAGU KCB, MR
20. You say you are working with the professional
groups, and that is fine, but as I understand it half of people
who return these forms are not going through chartered accountants.
As well as this going through the professional bodies, what steps
are you taking, through MORI polls, other bodies, to try and find
out what is worrying the public, what they find difficult and
how you simplify that?
(Sir Nicholas Montagu) That is an area of activity
where I readily concede we have not done enough. We do try out
booklets and forms on representative groups of taxpayers and we
do get feedback after the introduction of them. What we are doing,
and this was part of what the appointment of the Marketing Communication
Director was all about, is trying to segment our customers to
understand the groups that they fall into, to get in touch with
those groups to find out what their needs are, what their wants
are, what they like about the Revenue, what they do not like about
the Revenue. We are also working very closely with Citizens Advice
Bureaux, with the Low Income Tax Reform Group, with the Chartered
Institute of Taxation and we are doing research direct with taxpayers.
Again, it is a front that we are very active on.
Chairman: Thank you very much. Mr Davies?
21. Nice to see you again, Sir Nick. We met
up in Croydon. Can I ask you a few questions first of all about
undetected tax. You mentioned the children's question, the amount
of undetected crime rose last year, to give a logical commentary
on that but it is the case, of course, that the British Crime
Survey does measure undetected crime by doing a survey of thousands
of people and noting the level of unreported crime going up or
down. We know that the level of crime reported is between 20 and
25 per cent of actual crime. Why is it not the case that you have
thousands of people filling in diaries or some other market research
methodology to try and get a more accurate qualification of the
amount of missing tax?
(Sir Nicholas Montagu) Well, I think we do, Mr Davies,
in this sense: what self assessment enables us to do, which the
previous system did not, is to undertake random enquiries. The
Comptroller and Auditor's General Report, rightly if I may say
so, lays great emphasis on this. By undertaking random enquiries,
for the first time we get a real bottom up indication of the kinds
of sums that may be at risk.
22. And indeed those amounts, as I understand
it, the non-compliance estimates lost, were between 1.8 billion
in 1997-98 and three billion in 1996-97.
(Sir Nicholas Montagu) Yes.
23. And you in your endeavours picked up something
like 20 per cent of those which means there is 1.5 billion left.
What would you say the marginal return on extra investment is
in recovering some of this money? It is an enormous amount of
money in terms of any of our services.
(Sir Nicholas Montagu) Sure.
24. Can you quantify how much more money you
would have with a bit of extra resources in these areas?
(Sir Nicholas Montagu) I do not know that I could
come up with that figure. What I can certainly say is this: the
marginal return for enquiries of this kind is lower than it is
for tax as a whole. The report, I think, mentions the cost of
collection being relatively high for self assessment. For tax
as a whole we spend 1.1 penny for every pound collected, but if
you are dealing with the cases handled, say, by our Large Business
Office you are going to get a much lower cost of collection. Here
we are dealing with small cases often at the margin. Our research
has also shown that the amounts due from late returns are often
less than that due from the returns in on time.
25. From that last comment you made, namely
how small the marginal cost per pound collected, is that one of
your key targets? It strikes me that the marginal cost of extra
collection is obviously going to be more than the average by definition.
(Sir Nicholas Montagu) Yes.
26. Any rational business would move that marginal
cost of collection up to the actual amount of collection. Does
it not follow from what you are saying that you are focussing
on the wrong thing, you should be spending more on getting some
of this 1.5 billion that you are letting loose into the black
(Sir Nicholas Montagu) I do not really think so, Mr
Davies. Again, it comes back to what I said to the Chairman about
balance. If I neglect the very high yields that, for example,
my Special Compliance Office and my Large Business Office bring
in, I think this Committee would have something to say about that.
The key thing about random enquiries and what I have said about
the improved risk analysis is that we need to refine our risk
assessment. This is what we are now doing iteratively through
these schemes and through the random enquiries. I must emphasise
the point that before self assessment we had no powers to undertake
random enquiries, so it is an invaluable new source of intelligence.
27. Can I ask you something about random enquiries
then in terms of casual labour, particularly in respect of the
building trade. I suspect that possibly even people in this room
have been asked to pay cash for building work and that sort of
thing, I would not actually know, surely not, but in terms of
having an idea of how big this is, is there any prospect of people
going round in a given area spotting all the physical building
going on, looking at all the scaffolding and checking whether
those particular addresses and those jobs ultimately do filter
through the tax return of the relevant building works who probably
advertise on the scaffolding? Do you understand the question?
(Sir Nicholas Montagu) I do indeed and I will get
Dave, if I may, to answer it in some more detail in a moment.
The essence of the improved risk analysis that I keep on emphasising
is that we will have a better idea of which sectors, and the construction
industry could well be one, we should target for our activities.
Stephen's people would then kick in with the compliance activities.
I mentioned the Construction Industry Scheme before
28. Can we do the sort of thing that I just
mentioned, because we are short of time? I know that ten per cent
of tax returns are late after 31 January. Will you be phoning
and contacting those ten per cent of people who are already known
to be habitually late to ensure that they are not late again?
(Sir Nicholas Montagu) Every single one of them, Mr
Davies. That is an answer that I need to amplify. Of the 900,000
people who are
29. Before Christmas?
(Sir Nicholas Montagu) In good time for the January
return. The important point is this: there were 900,000 of them
and some of them will not have been sent tax returns this year,
maybe they have died or gone out of business. Some of them will
already be in touch with us over, say, some disputed debt.
30. The ones who are not
(Sir Nicholas Montagu) What we are talking about,
we are talking about a hard core of 200,000 people.
31. One at a time, please.
(Sir Nicholas Montagu) What we are talking about is
200,000 people and, yes, we will be ringing up every single one
of them using modern predictive dialling techniques.
32. What about checking out people with scaffolding?
You just check that household is somewhere in their accounts.
My suspicion is quite a high proportion of builders may have quite
a high proportion of their jobs not in their returns. I may be
(Mr Banyard) Mr Davies, can I take this. Quite simply,
the Construction Industry Scheme enables us to identify lots of
builders. When we investigate one of the key questions is "What
jobs have you done for cash" and we will pursue that. Our
research and analysis teams, which Nick was talking about earlier
on, are interested in just what you describe.
33. You take my point.
(Mr Banyard) Absolutely.
34. The point is you can physically see the
work and make a note of it.
(Mr Banyard) And that plays into our risk assessment.
35. That particular job is in the return as
a random test?
(Mr Banyard) Yes. That goes into our risk assessment.
36. It was commented that the target is moving
from people to yield which I was surprised by. Do you know what
the tax yield from intelligence work is? The suggestion, therefore,
was what we want is the number of people, which is obviously very
important, but what we want is their money, is it not?
(Sir Nicholas Montagu) Again, I want to be as helpful
to the Committee as I can on this but, as the report makes clear,
intelligence yield is not a simple and straight forward concept
in this sense. If our intelligence results in our finding somebody
then the yield may show up in all sorts of ways. It may come from
continued compliance once our right track team have got them in;
it may come in through our employer compliance figures; it may
come in as direct intelligence yield. So there is no straight
answer to that. What we are aiming to doalthough as the
Committee knows we do not target yield as such, and as Stephen
pointed out we are moving much more towards targeting peopleis
we do nevertheless forecast yield and we would expect that to
37. If you look at the percentage of self assessment
by 31 January, as you know very well in 1996-97 it was 92 per
cent and it has been going down ever since.
(Sir Nicholas Montagu) Yes.
38. In 1999-2000 it was 89.5 per cent. It sounds
as if you should be targeting people as well and this is plummeting
at a time when we are investing more in intelligence work.
(Sir Nicholas Montagu) Plummeting is a bit of an exaggeration,
39. Moving steadily down year after year.
(Sir Nicholas Montagu) Steadily and slowly down. Plummeting
to me suggests speed.