Examination of Witnesses (Questions 160
MONDAY 22 OCTOBER 2001
MONTAGU KCB, MR
160. The first sub-paragraph of 4.10 says "initial
local office compliance plans and targets were based on the resources
and abilities of their compliance staff." In other words,
where you had a well staffed office with a low vacancy factor
and high skills they took on more cases. The rest of the paragraph
appears to read that actually what you are saying is not happening,
that you are moving cases from one local office but rather the
initial plans were based on the capacity of the office to deal
with a particular workload.
(Mr Banyard) Yes, they were, but when you look across
161. In that respect then the random nature
of targeting of particular taxpayers is undermined to some extent
since some offices were capable of doing more than one in a thousand
and some were capable of doing less than a thousand.
(Mr Banyard) Can I take both points. First of all,
the first bullet of paragraph 4.10 is to do with each local office
that will have set its targets but then we have to look across
them all and say are some of them getting more out of their people
than other offices and challenge the ones who are underachieving
to do better. In terms of the random audit cases, they were mandatory,
they were all worked.
162. These paragraphs do not say that, do they?
(Mr Banyard) I think it is implicit that the random
audit was carried out.
163. I think it is quite explicit what these
paragraphs are saying. The first bullet point finishes up with
this final clause in this last sentence "local plans were
adjusted to match the overall target". We then see in the
next bullet point that there were skills and resource shortages,
in London for example. It then says "Where this has put the
overall target at risk, the remaining regions have increased their
take up targets to compensate". That is not saying that cases
were transferred from London elsewhere, what it is saying is they
were given larger take up targets because they have more skills
and more staffing resources. The rest of the paragraph goes on
to reiterate that. Maybe I am misreading it, but I do not think
(Mr Banyard) It is true that our local offices increased
their take up in some areas but there was also transfer of cases
too. What we are concerned with is targeting risk and having a
certain coverage overall.
164. The next paragraph or two go on to targeting
and I want to ask you about targeting in a minute. I am still
trying to establish, and have you accept, what this document is
clearly saying, which is that in some areas you are doing more
than one in a thousand and in some areas you are doing less than
one in a thousand.
(Sir Nicholas Montagu) I do think it is very important
that what figure 13 is talking about is the enquiries that we
take up. In other words, the cases that we select, not the one
in a thousand cases selected centrally for random enquiry, all
of which will be taken up.
165. I understand that now, perhaps I misunderstood
it, but I do not think it is quite clear that is the case in the
report. Nevertheless, the point I am making is not undermined
in any way. There are some areas where there were more resources
available to tackle cases generated within that office and in
other offices that was not the case. That raises questions about
the character of management and also management information systems
which were in place and maybe still are in place.
(Sir Nicholas Montagu) Perhaps I could bring Dave
in to help clarify this.
(Mr Hartnett) I think there is an important misunderstanding
here, and it is this: Nick talked earlier on about the factors
which influence where our resource is and, for example, mentioned
we have difficulty with resource in London. I think implicit in
what you are saying is that we may therefore neglect in some way
our enquiries into, for example, London taxpayers but huge numbers
of London taxpayers are actually dealt with in Manchester, in
Newcastle and in Edinburgh. So that implicit risk simply is not
there. What these paragraphs are saying, quite simply, is that
we have national targets which we apply by reference to the resource
we use. I do not think there is any risk here of there being shortfalls
in geographic areas.
166. I read this document quite differently.
I think anybody who goes away and reads it quietly will accept
that there is a lot of ambiguity here. It is clearly saying that
the workloads were adjusted to take account of the skills and
resources, not that the workload was distributed through some
national distribution. I want to move on because I think I have
made my point and you have made yours. Can you tell me what proportion
of the staff and what the cost is in relation to this particular
work between the two years? Has it increased or decreased and
so on? Earlier you were taking pleasure in the 1.1 penny per pound
collected and no doubt quite pleased with the proposal. With the
marginal cost argument you had to go back to the Treasury and
ask for more staff since it is so cost effective. I am just wondering
if you know what this work costs?
(Sir Nicholas Montagu) I do not think I ever said
I was going to go back to the Treasury and ask for more staff,
Mr Trickett, I know my limitations.
167. I just was interested in the exchange between
yourself and Mr Davies, who is not in the room, that was an argument
being made at the time. Do you know what the costs were of this
(Mr Banyard) I can find it in a minute. I cannot immediately
lay my hands on it.
Chairman: Tell us later.
168. Just send us a note. There is one final
point which I want to ask about which is targeting. Presumably
the random selection of cases, this famous one in a thousand I
have misunderstood, has led you to the conclusion that certain
categories of activity or individual or perhaps geographical locations
or demographic factors are more prone to moonlighting or ghosting.
Can you give us some indication as to what your conclusions are
in relation to?
(Sir Nicholas Montagu) Smaller businesses more than
large businesses, small businesses where a substantial number
of transactions are in cash.
169. Is there any geographic or other categorisation
within that? I have to say in terms of the kind of sophisticated
management information which I would envisage you have, I would
expect you would be able to say in some more detail precisely
which categories other than just small business sector.
(Sir Nicholas Montagu) Only I think in very broad
terms, Mr Trickett, like, for example, larger cases tend to be
in the South rather than in the North but I am not sure that we
can disaggregate below that group.
170. Do you think it would be fair to underline
the point that you made earlier that the management information
system is quite weak?
(Sir Nicholas Montagu) No. I think it would certainly
be fair to say that we need to improve our management information
system and our risk analysis. Risk, intelligence and analysis
teams working on the results of random enquiries will enable us
to achieve that sort of refinement.
171. Sir Nick, may I start off with a couple
of responses you made to Mr Steinberg earlier. Correct me if I
am wrong but when he challenged you that it might be better to
chase some of the backlog rather than chasing big debtors, I think
you said that late filers tend to have smaller debts.
(Sir Nicholas Montagu) On the whole we tend to find
that, Mr Rendel, but I should say I was not saying that we should
clear the backlog rather than chase the bigger debtors.
172. You were saying you ought to chase the
(Sir Nicholas Montagu) No, I was saying that we are
doing both. Yes, of course we pursue the bigger debtors but, as
Stephen indicated, we are actively, and in a targeted way, pursuing
the backlog. Having cleared the backlog we will then hope, through
the work that I have described, to keep it down.
173. The point I was interested in was this
question whether the late filers tended to be the smaller debtors.
According to paragraph 3.13 there are four particular groups that
tend to file late and one is taxpayers with substantial liabilities
in the previous year which seems to be the exact opposite of what
you are saying.
(Sir Nicholas Montagu) They are one group. As a generalisation
it is true to say that the late filers' debts are smaller. Obviously
I accept what Sir John has found there. I should say, perhaps,
that taxpayers with substantial liabilities in the previous year
who do not file would again be a prime sort of case for determinations
which are based on previous years' liabilities and the daily penalties.
Quite often new filers will actually have no liability. There
is a correlation there.
174. I understand the rest of it, I just wanted
to clear up that point because it does seem that big debtors tend
also to be late filers. Can I go on to another point you were
making there in your discussion with Mr Steinberg and that is
the question of the £100 penalty and the fact that it is
refunded if the debt turns out to be less than £100. Is that
true of just the first £100 or is it also true of the second
(Sir Nicholas Montagu) It is true of both.
175. True of both?
(Sir Nicholas Montagu) Yes.
176. When do you have to pay that £100?
(Sir Nicholas Montagu) The first is if you do not
file by the 31st January.
177. When do you actually have to pay? That
is when you are charged for it. What happens if you just do not
(Sir Nicholas Montagu) We would then pursue it as
part of the self assessment debt.
178. How long would you go on pursuing it before
you start taking people to court for it or whatever?
(Mr Banyard) It depends on the overall size of the
debt because we have got to be cost effective.
179. These are people who have not yet sent
in their form.
(Mr Banyard) We are pursuing the forms overall by
trying to target the number of forms that we get in but in terms
of using our resources we target the overall debt and what we
target to do is to get in 72.9 per cent of the debt for this year.
9 Note by witness: In 1999-2000 this work involved
3192 staff (full time equivalents) and cost £216.1 million
(including all overheads). Back
Note by witness: The penalty is reduced to the amount
of the tax debt, but is payable in addition to the tax debt. Ref
footnote to Q129 and also Ev, Appendix 1, p32. Back