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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 673-i
House of commons
TAKEN BEFORE THE
Administration and Effectiveness of HMRC
Wednesday 24 October 2012
Gareth Hills, Graham Black and Peter Lockhart
Paul Aplin, Robin Williamson and Richard Baron
Evidence heard in Public Questions 1 - 99
USE OF THE TRANSCRIPT
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Taken before the Treasury Sub-Committee
on Wednesday 24 October 2012
Mr George Mudie (Chair)
Mr David Ruffley
Mr Andrew Tyrie
Examination of Witnesses
Witnesses: Gareth Hills, President, Association of Revenue and Customs, Graham Black, Past President, Association of Revenue and Customs, and Peter Lockhart, PCS Revenue and Customs Group, gave evidence.
Q1 Chair: Gentlemen, myself and other colleagues have important things to do this afternoon, less important than this, but statutory things. We are on the cusp of a quorum, so we have to go very quickly. I don’t need to tell you gentlemen, no flannelling; just say it as it is. We would appreciate that. I have never found you in the past not to be forthcoming.
Mr Tyrie: I don’t know who wants to take this first; I am not sure all of you need to answer. It has been reported that there have been a number of resignations from HMRC and that has increased in 2011 and 2012; is that correct?
Peter Lockhart: Staff numbers are falling in HMRC. Are you talking about high-level senior resignations?
Mr Tyrie: I am talking about resignations throughout HMRC.
Peter Lockhart: There is a fairly high attrition rate in HMRC, and that is connected with aspects of staff morale.
Q2 Mr Tyrie: Why is that happening?
Peter Lockhart: It is connected with the constant change that is going on in HMRC, and the public servants in HMRC are hardly helped by a fairly constant attack on terms and conditions and the taking away of resources that help with the job. It is not an easy place to be. A business in HMRC is expected to deliver far more with far less resources year on year. It is one of the few departments that has had less money to be expected to deliver more in each of the years since its formation in 2005. It hardly helps to create a great sense of staff morale going forward at a period of rapid change.
Q3 Mr Tyrie: You have mentioned rapid change and resources as two of the causes; can I just posit, in a neutral way, a couple of others. Does it have anything to do with the fact that you are being asked to implement a complex tax system, which is tough to deal with?
Peter Lockhart: That is one aspect of the work in HMRC; in no other business would you have fewer people delivering a more complex system, so that hardly helps.
Q4 Mr Tyrie: Are tax systems becoming more complex?
Peter Lockhart: The evidence that you have taken in the Committee from professional bodies indicates that there is considerable concern about the over-complexity of the tax system. What we are concerned about is the fact that our members have to work within those parameters and deliver more complex work with far fewer resources and staff to be able to do that.
Graham Black: Our members are used to dealing with a complex tax system, and you are right, it is getting more complex with every passing year. I do not think that is at the heart of the reason why people are leaving; it is more about concern over the attacks on public servants generally and what they see as attacks on their terms and conditions. Longer-term, our bigger concern is that as and when the economy picks up we are going to lose more people as accountancy firms and so on start increasing their recruitment; that is when we may lose some of our experienced and highly trained individuals to other organisations. We have a longer-term concern beyond what is happening at the moment; we can see difficulties ahead.
Q5 Mr Tyrie: Before I leave that list of additional things that might be a cause, I would like you to comment on whether or not quite widespread press and public criticism of HMRC is a cause.
Gareth Hills: I think that is an element in terms of morale and engagement. The stories that I have seen were speaking about senior staff, the figure that was quoted was approximately 43% increase in turnover at senior levels. It may be that a handful of very senior people leaving has that impact in terms of those numbers, but I think that yes, criticism of us in the press and what that means in terms of staff morale and confidence is a corrosive factor.
Q6 Mr Tyrie: Do you think that suggestions that have been put to me, and to others, that low morale is having an effect on the overall tax yield are also correct? In other words, an organisation with low morale is likely to do less well at its job than an organisation with good morale, and your job is to get the tax in.
Gareth Hills: That is not something that I recognise. You have to separate out the low morale from the pride that individuals have in doing their job. People are proud of the work they do at HMRC; certainly at senior levels they recognise the responsibility in the roles they have and the objectives that HMRC needs to deliver in terms of funding public services, but low morale and staff engagement is something that we have tried to work with in HMRC since the last time the unions were before this Committee. Working with HMRC, we commissioned an independent report and that led to us reaching an agreement with HMRC around a raft of issues where we have concrete ideas to improve morale and engagement.
Q7 Mr Tyrie: I was going to ask you about those, Mr Hills; have those been implemented?
Gareth Hills: Yes, they have.
Q8 Mr Tyrie: Are they helping?
Gareth Hills: I think they are helping. It is going to take some time to see change.
Q9 Mr Tyrie: Mr Lockhart’s initial answer was pretty depressing on that point.
Peter Lockhart: Sorry about that.
Gareth Hills: There is a legacy of trust and engagement issues that is going to take some time to get over. We are not going to see change overnight, but we have to keep on at it to make HMRC win back public confidence and make it a great place to work, and that is what we all want.
Q10 Mr Tyrie: But just to be clear, you are arguing that the low morale has not reduced outputs, it has only made it a less comfortable place to work?
Gareth Hills: That is the way I see it, yes.
Q11 Mr Tyrie: Is there any dissent from that view?
Peter Lockhart: I would not want to dissent from our sister trade union, and it is difficult to have a direct correlation between low morale and what that does to productivity, although some would like to claim there is that direct correlation. I would posit that if you have a highly motivated workforce that is demonstrably committed to the work they are doing, they will perform better and that will impact on the work they do. In the case of HMRC, it is collecting tax and money.
Q12 Mr Tyrie: You would not want to, but you have.
Peter Lockhart: I am just saying that there are clearly issues with staff morale, but equally the staff in HMRC are a committed bunch of workers. They are absolutely committed to what they are doing, but they are doing so under great duress because of an ongoing 10-year change programme, the fact that their terms and conditions are being eroded, the fact that they do not know where they are going to be working from one year to the next, and the fact that there are office closures over the last six or seven years. It is a difficult environment, and I am sure if those things were sorted out then morale would be higher.
Q13 Mr Tyrie: Mr Black, is there anything in particular you would like to add?
Graham Black: No, I would agree with both my colleagues. Our staff are professional at all grades throughout HMRC, and they take pride in delivering a good service. Yes, I think if we had a more highly motivated workforce you would get an extra mile from all of them and that would help, but at the moment they are professional, and we see that in all areas of work that we do.
Q14 Chair: Both Mr Black and Mr Hills said their nine-point plan was being implemented, albeit slowly. Have you seen this nine-point plan, Mr Lockhart?
Peter Lockhart: Yes, of course.
Q15 Chair: Do you see your staff at your members’ level being consulted, being empowered, being influential, allowed to develop, trained and valued?
Peter Lockhart: I think we see the basis on which those aspirations can be achieved.
Q16 Chair: Can be achieved, or are being achieved?
Peter Lockhart: The best that I can say is that they will be achieved.
Q17 Chair: That is still in the future, isn’t it?
Peter Lockhart: I am afraid it is in the future.
Q18 Chair: This is a year old, so what has happened, concretely, for example on empowering staff? That was one of your complaints last time,
Peter Lockhart: Since we were last before this Committee, we have reached agreement with the department on what is called a trust agreement. On the back of the staff survey last year, we have reached a fairly wide-ranging agreement, part of which was, as Gareth has said, commissioning this independent report on how senior staff can re-engage with staff at lower-graded parts of the organisation. It took us a year to get to that point where we have that baseline agreement, and I think it is going to take longer than another year before we can entirely say that all the staff in HMRC are committed to the cause of the department.
Q19 Chair: Have you finished, Mr Lockhart?
Peter Lockhart: I have, but these things do take time. The department has been in existence since 2005 and staff morale has been a problem since that point of formation. We have the building blocks in place to make sure that there is greater staff engagement, but that is not to say that the nine point plan or any other aspiration plan-
Q20 Chair: Okay; to sum it up though, in the year you have had some changes, a new chief executive, new people on the board, and a new chairman. Is there a better atmosphere? Is it perceptively changing, although you accept it is going to take some time; yes or no?
Peter Lockhart: Yes.
Q21 Chair: Are you working in a different atmosphere from the pretty low level you expressed last time?
Graham Black: Yes. I do not think we would say we have reached the sunlit uplands of a perfect organisation. What we are seeing is that things are going in the right direction.
Chair: I think we gathered that.
Gareth Hills: Yes, we have a better relationship with HMRC’s senior team and are working together.
Q22 Chair: Is that a yes?
Peter Lockhart: It is a qualified yes.
Chair: Two yesses and one qualified yes.
Q23 Mr Ruffley: Mr Lockhart, the report that this Committee published last July 2011 spent some time looking at the command and control issue at HMRC. Regarding the people you represent, do you think in the last 12 months things have improved in that respect?
Peter Lockhart: I am trying not to give the same qualified positive answers I gave last time.
Mr Ruffley: Speak freely.
Peter Lockhart: HMRC are in a very difficult position, in the sense that the direction that the politicians want to take the department are perhaps at odds with running a successful large department. That requires greater resources than HMRC has. The journey is not one you would want to start from here. Within those parameters though, HMRC are making a very good job of proactively reconnecting with staff and understanding there is an issue. Indeed the whole of ExCom are signed up to the report that Gareth mentioned, which freely admits there has been an unhelpful culture of command and control whereby staff have not been allowed to exercise their own individual sense of how they might best pursue the work.
Q24 Mr Ruffley: Okay. What we are talking about is micro-managing; not empowering officers enough. How do you measure that? I think you are suggesting that given resource constraints, in the last 12 months there seem to be some moves towards reducing micro-management. Is that fair? I want to understand how one measures that. Are there any surveys you have done that specifically ask the staff who are pressured because of being asked to do more with less, if there is less micro-management? Is there evidence that it is getting better in that respect?
Peter Lockhart: One set of evidence will be the staff survey that is going on currently. That gives a snapshot of the attitude of staff towards the immediate line-management chain and how that is separated out from attitudes towards more senior and, perhaps, remote management.
Q25 Mr Ruffley: Forgive me, will that ask about micro-management?
Peter Lockhart: It will come out about the way that staff feel they are allowed to exercise their own degree of autonomy.
Q26 Mr Ruffley: When do you expect that survey to be out?
Peter Lockhart: That is the Civil Service-wide staff survey, and I expect that will be out towards the end of this calendar year.
Mr Ruffley: Thank you. Sorry, I interrupted.
Peter Lockhart: That will give us an idea about that. That will compare year-on-year figures to where we are now. It is not the be-all and end-all, but it does give us that snapshot.
Q27 Mr Ruffley: You would expect it to get better. Mr Hills, is that something you would agree with?
Gareth Hills: Yes, I would agree. Part of the recommendations in the report I referred to, that HMRC senior management have bought into and committed to, include having open conversations with their staff about issues that impact on them, about triaging problems and getting to quick solutions for them, and also about using people impact assessments and considering the people impact of new products and processes. All of that is designed to get away from the long shadow of command and control that has come down from very senior management. Again as Peter said, it is early days, and we have yet to see that drive down and translate into delivery throughout the organisation.
Q28 Mr Ruffley: What this Committee will be looking for is evidence of what sounds a welcome change. When we are talking about welcome changes in the way things have been done, has the new chief executive done anything in particular that you could cite, Mr Hills, to change the culture? Are there one or two initiatives that she has brought forward that have changed things in the last few months?
Gareth Hills: The new chief executive is very much on the page with the open conversations and an approach called "site-based communications" with senior people going out and talking to people in locations and encouraging the growth of a community in locations with people working in different parts of the department; people who normally would not generally work with or speak to each other.
Q29 Mr Ruffley: That is new, and I am a bit surprised. That was not done indeed under the previous regime or regimes. This is something new that the new chief executive has introduced?
Gareth Hills: It is new in the way it is being driven out.
Q30 Mr Ruffley: Could you say a bit more about that? Are the visits more frequent from senior executives?
Gareth Hills: Yes, it is about increasing senior management visibility in going out and talking to people and encouraging Q and A, and part of it is about escalating problems and trying to get solutions to them. I can give you one tangible example.
Mr Ruffley: Yes, please.
Gareth Hills: There was a real example of command and control that HMRC was expecting managers to do what amounted to 110% checks of travel and subsistence claims. That was a waste of a lot of management time. We brought that to the chief executive’s attention, and earlier this year that decision was reversed. That has freed up a lot of management and it has empowered them, and that was welcomed by managers in HMRC.
Q31 Mr Ruffley: Mr Black, is there anything that the new senior management in the shape of the new chief executive are not signing up to that you would like them to do? Are they missing anything? I understand it is early days and we do not quite know what the effect of the changes they have announced will be, but from your point of view are they missing a trick? Are there things they are not talking about that they should be talking about?
Graham Black: Inevitably they will do some things that we think are not right.
Q32 Mr Ruffley: If you were chief executive for the day, is there something you would do that is not being done now or is not being discussed now?
Graham Black: No, all the things that we would want to have on the table are being discussed. It is still early days because it is not just the chief executive; we have a new senior team. They are getting their feet under the table and are going to have to decide how to drive that forward in all the different lines of business. The direction of travel seems to be the right one, but it is very early days. What we are saying is that empowerment is seen as an issue, for example, but we are not yet at the stage where that has turned into the practicalities of what it is going to feel like in the front line and exactly what is going to be taken away. Gareth gave an example, but we would like to see that in a much broader area going forward.
Q33 Mr Ruffley: Mr Lockhart, in our July 11 report we said HMRC management had introduced a series of initiatives that were designed to improve staff’s willingness to engage and raise their concerns, including opportunities to phone or email problems to staff forums or senior management. Would you say that has been successful?
Peter Lockhart: There are clearly many more avenues now that staff can use in order to raise issues.
Q34 Mr Ruffley: Are they using those avenues?
Peter Lockhart: They are using those. I sometimes wonder whether-because there is such a range of ways in which you can communicate difficulties that somehow gets a bit lost. What we want to see is how those concerns are acted upon, but there was certainly a positive response in terms of senior managers going out to talk to staff. It is always a bit fraught with difficulty. Generally, that does elicit some difficult conversations, but it also means that there are issues that are out there in the open. What is worse for our members is when you have that first conversation and then you are still having the same conversation six months later. We are at the point currently of having those initial conversations between senior staff and our members. In a very difficult economic environment, what we are nervous about is how that will translate into tangible positive changes that our members who work in an office or a call centre can see that that has impacted on the way they go about working. Does that mean that those people still have to clock in at exactly 9 o’clock and if they are in at 9.03 that they are in trouble? Can they go to the toilet without asking? Are there issues with the way that they are able to book their flexi-leave and annual leave, or is there some degree of autonomy and trust that is truly and tangibly given to those individual members of staff?
Q35 Mr Ruffley: My final question on this, Mr Hills: staff are being asked to do more with less and we all know what the funding constraints are, but do senior managers have any productivity data when they are asking their staff to really pull the stops out? I know how difficult it is to measure productivity in the private or public sector, but there is a huge debate about productivity in the public sector whether it is in the NHS or indeed any other department. In your experience, do managers have productivity targets because they have to steer the ship with constrained resources? Do they ever explain to the staff, "The output and the productivity of this team has risen 5% this year, well done. We are up against it". Are those metrics ever discussed with the staff, and if not, do you think they should be?
Gareth Hills: There are different sets of metrics depending on the part of the organisation.
Mr Ruffley: Could you just say a bit more about this and how it is shared with the staff to encourage them?
Gareth Hills: If you work in a processing job, there are metrics around, for example, call handling. There will be metrics around the turnaround of post. If you are in the compliance area, you would be looking for yielding targets and settling cases and the length that cases are open. Those are shared with staff. Ideally, what we would like is some bottom-up input into that targeting regime so the targets do not drive behaviour but the individuals can see a clear sight through to the objective and own it themselves. Yes, HMRC should be sharing that and should be saying thank you to its staff. There are any number of schemes in place that HMRC can use to reward its staff, and I hope that it does so fairly and equitably.
Q36 Mr Ruffley: You all make a perfectly fair point that money is tight now and staff are being asked to do more. Mr Lockhart, the sense I get anecdotally is that there are these dreadful targets and these awful spending constraints and it is all fairly miserable. What is the experience of your members when managers are asking staff to perform and go that extra mile? The targets are almost seen as a threat. Is there not any sense that, "You have hit these targets", and, "Well done"? Targets are not a bad thing to beat staff with; they can be a better way of staff getting more job satisfaction for being more productive and getting through the work. Do you recognise that in any of what your staff say; that they have some great managers who really encourage them to beat next month’s target to turn around whether it is correspondence or call handling or resolution of cases? Is there that sense you get from management, or do they use it as a stick?
Peter Lockhart: What you have implicitly described is a confident organisation. I am not sure HMRC is yet that kind of confident large department. The answer is implied in your question and with that confidence will come a sense that you do not need to drive down targets to quite such a micro level. That it is not necessarily the best way to motivate individual members of staff by saying you need to hit certain specific targets or set those as part of your annual appraisal process but that comes with time and confidence. Having those kinds of hard targets is something that belongs to a different era, and what we want to see and what we are confident about currently-you can test us on this again next year-is HMRC has those building blocks, recognises the issues, recognises that using targets as a stick is not the way to motivate staff but instead it is about trust. They are one of the tangibles that we would like to see rolled out in HMRC so there is not this reliance on, "Have you met a hard target or not?" but it is about, "How well have you contributed to the organisation in a number of different ways; how confident are you to use your own initiative and to work as a team to achieve the overall-?"
Q37 Mr Ruffley: Understood. Mr Black, just on this productivity point, my suggestion is that when there is good performance, productivity is going up. How often have you come across very senior managers using that as a tool for praising a team for excellent performance? Is this widespread that there will be a senior manager who says, "This is a crack team; it is doing brilliantly month on month"? How often do you hear that?
Graham Black: I hear it a lot. Managers are doing that. From a staff morale viewpoint though, on the one hand everyone is saying you are doing more with less, you are hitting or exceeding these targets and that is doing really well at the same time as we are cutting your salary, hitting your pensions, reducing your terms and conditions, and Ministers are sometimes publicly castigating civil servants generally. So you have these slightly mixed messages, but I think the senior staff in HMRC are certainly quite happy to publicise good news stories about the successes their staff are having. I have seen more of that in the last year or 18 months.
Mr Ruffley: That is interesting.
Q38 Teresa Pearce: In the last budget, some of the areas that were proposed such as changes to child benefit brought a lot of people into self-assessment who were not in before, getting rid of age allowance will bring more people into tax that would not have been; pensioners. At the same time HMRC is committed to reducing staff numbers by 10,000. Are those two things compatible?
Peter Lockhart: You are pushed for time so no. They are clearly not. It just does not make any sense and it is frustrating for us. Not just for trade unionists but as taxpayers. It is absolutely illogical to cut staff in a department that you are rightly pressing to collect and administer a wide-ranging tax agenda.
Gareth Hills: I would not dissent on that.
Graham Black: Yes, that is absolutely right.
Q39 Teresa Pearce: Good. That was not complicated, was it? Just looking at reducing staff, one of the things that occurs to me at the moment is the large number of staff involved in tax credits. With the change to universal credits, what work has been done on staffing levels? Are staff aware of whether their job might go or they will get transferred? What conversation are you having with your members?
Peter Lockhart: They are at phase one of the potential staff transfers for universal credits. It is a bit DWP-led, because that is the larger driving force. We know about a couple of sites where we expect our members in HMRC to be transferring over to the universal credits.
Q40 Teresa Pearce: Would that be a TUPE transfer?
Peter Lockhart: It is a COSOP, a Cabinet Office Statement of Practice, so it is equivalent to a TUPE transfer, yes. It is done inter-departmentally.
Q41 Teresa Pearce: Because local authority housing benefit staff will not be TUPEd because they say it is not a transfer of undertakings, but is a completely new undertaking. HMRC has changed a lot. I used to work for HMRC years ago, and I remember when we merged with the collector, that was the biggest thing, and then you had the merge with Customs and Inland Revenue. It has been constantly changing and evolving. Universal credit is a massive change in the way people are paid. It affects HMRC hugely, and I wonder how staff are on that journey, and whether it is explained to them and they understand what is happening, because there seems to be a lot of misunderstanding about what will happen. Although you have said it is not the only thing, morale is particularly important in retaining staff and experience. Are you getting enough information to be able to talk to your members in a constructive way about how things will be phased and what will happen when?
Peter Lockhart: There are more things that are not known, so it does add to a degree of anxiety and insecurity about whether you, as a member of staff, will be in scope for this transfer or not. Setting aside the politics of whether it is the right thing to do, our members want to know where they will be working. Despite all we have said about HMRC and low morale, our members have a degree of residual commitment to HMRC and are very nervous about working for the DWP. We are going out to talk to staff, and what we are finding is that it is creating more questions than we are able to give answers at the moment.
Gareth Hills: I am 23 years as a tax inspector, so I recognise all that change. This is an issue that affects PCS members more than ARC members, but it will affect some ARC and FDA members as managers. What I am aware of is that the DWP section in FDA is speaking to ARC people and there is an ongoing dialogue between the unions in both departments and the employer. That information is getting out to staff.
Q42 Teresa Pearce: One last thing that concerns me is the civil service survey. When you are looking at bright young things leaving university and looking for a career, do you think some of the results of the survey saying that people do not think the management is doing a very good job is putting people off joining HMRC? Do you find recruiting bright economic students into working for HMRC has always been difficult because they would rather go to the Treasury because it is sexier? Does any of this have an effect on getting the brightest and the best to come and work for you and close that tax gap?
Graham Black: The survey is looked at more by people working in the department. I have been involved in recruitment exercises, and we are having a huge number of applicants of a high standard for our graduate recruitment programme. Obviously, the economic situation will be affecting that as well. It is one thing recruiting them; it is retaining them once we have invested a large amount of money in training them, and that we want to make sure they are staying with us and getting pay-back for HMRC.
Gareth Hills: This October we have taken in 200 new staff on the trainee programme that leads them to being tax inspectors. That is good, and HMRC is committed to 110 trainees on the same programme for every year forward from 2013, but I think the real issue is the one Graham mentioned around retention against the backdrop of uncertainty around pay and terms and conditions and already detrimental changes to pensions.
Teresa Pearce: I have another declaration of interest; as someone who worked for HMRC and then went to work for PwC, I understand exactly where the drain goes.
Q43 Chair: In terms of job losses, how are they being handled? Are there redundancies, or is it being done on natural turnover?
Peter Lockhart: It has been done on voluntary severance terms. They are not compulsory redundancies but individuals have been asked if they would leave voluntarily. Currently it is being done on natural wastage.
Q44 Chair: Does that not cause you to have problems, if it is just done on natural wastage, because in the reports there is a serious question of experienced staff going and the loss of those?
Peter Lockhart: The age demographic of HMRC is hardly one to fill you with confidence that there are plans in place to replace that natural flow-through of staff. For instance, HMRC currently employ approximately 4,000 temporary staff, and in our view they have done that in order to plug the gaps of service delivery that they are simply not able to cover because they are losing permanent staff. That does not seem to be a wholly logical way to run any business. Some of the temporary staff coming in have not worked before, and although it is great to get people off dole queues it does not necessarily replace those long-serving members of staff who are leaving the department.
Q45 Chair: These temporary staff: are they additional to the permanent staff, or are they replacement? Are they running it where these 4,000 are part of the permanent staff but on temporary contracts, or are they additional to the permanent staff?
Peter Lockhart: I am not sure how it is accounted for or if they are part of the headcount, but they are part of the 64.
Q46 Chair: It is a vital cost, and if we are saying to the public that staff have been reduced by this and they have then brought temporary staff in, that raises different questions, does it not?
Peter Lockhart: It does; there are all kinds of different questions.
Chair: We will ask anyway.
Q47 Mark Garnier: Thank you, Chairman. In July last year this Committee recommended, "HMRC could examine how it implements job cuts with the aim of preserving the professional expertise in tax it needs to deliver an effective service". Peter Lockhart, do you think it is achieving that?
Peter Lockhart: My colleagues may know better. It comes back to what I said previously that by dint of age there is a degree of arbitrariness at the time with which you leave the department. If you are coming up to retirement, you go and that is not based on an assessment of experience or the staff you need to retain. Nor is natural wastage, because again that depends on whether you want to go off to PwC or anywhere else. There is a real concern again about the age profile of HMRC and the planning that is going into place to deal with it.
Q48 Mark Garnier: The age profile is going down?
Peter Lockhart: The age profile is quite high, and Gareth has the exact figures.
Gareth Hills: We hear all sorts of stats being bandied about, about the ratio of a grade 7 level, and people over 50 to those under 30 being as startling as 11:1, so there is a huge retirement bulge.
Q49 Mark Garnier: There are 11 people over 50 to one person under 30; there is no succession planning, is what you are saying?
Gareth Hills: The figures I mentioned earlier-the 200 people who have been brought in this year with a commitment to 110 each year from 2013-that is in the pipeline, but it takes four years to train and develop those people to become tax inspectors. In November of this year, 43 people will graduate and become grade 7, but the demand for them to take up posts exceeds the number of people coming through. The number of business-critical jobs that people are looking at and making bids for those 43 is over 150, which is why we say retention is as much an issue as recruitment. Yes, there are resignations, but retention is absolutely vital to keeping that expertise there.
Q50 Mark Garnier: What you are saying is it is difficult to recruit at the bottom end, you find that when you do recruit it is difficult to retain them, so you are now overweight in people who have been hanging around for years; is that right?
Gareth Hills: We are not finding it difficult to recruit. As Graham said, we had lots of applicants for the current intake. Retention may be a problem.
Q51 Mark Garnier: What I am trying to do is rationalise your earlier comment that there are 11 times as many people aged 50-plus than there are aged 30 and below.
Gareth Hills: That is because of the demographic and the failure to adequately look at a pipeline of trainees coming through over the past decade or so.
Graham Black: As we mentioned at the last hearing, we have had 10 years of cuts in the department. What that has meant is that in your normal sequence of events you would be recruiting and losing people, but we have not been recruiting as many over that 10 years, so we have some gaps that are now coming home to roost because we have an age profile that is not evenly spread.
Q52 Mark Garnier: Any organisation that is implementing cuts still has to work out its succession planning. This happens in the Army and all sorts of organisations; while we see people losing their jobs at one end of it, you still see recruitment going on. Are you saying that has not been happening properly or to the level it is needed?
Graham Black: We are saying that there was a period of time when that was not happening in the way it should have happened. Now there are efforts to redress that but it takes a long while to redress it.
Q53 Mark Garnier: So there is a bit of a void moving through the organisation?
Graham Black: Yes.
Q54 Mark Garnier: Graham, I just want to turn to you and quote the Guardian article on 23 June this year. You may remember it. "The Government has promised to reinvest £917 million of savings back into HMRC, but Black said cuts to the department including a further 25% cut in expenditure announced in the spending review would further erode staff capacity, staff morale and HMRC's overall ability to close the tax gap. ‘The Government is shooting itself in the foot’, Black has said. ’Cutting tax-gathering budgets during a period of economic recovery is grossly counterproductive.’" We have met and talked about the tax gap before. Do you still think there is a serious problem?
Graham Black: It is certainly a serious problem. We welcomed the reinvestment of £900 million in the context of a £3 billion overall cut, so it was still a cut. Undoubtedly the reinvestment has been targeted very effectively at dealing with evasion, and it is very important that we did that but there are still gaps. There are areas of the tax gap that we have not been able to invest further in, where we have had to take further cuts, in dealing with avoidance and some of the larger technical issues where there are large amounts of money at stake and you need tax professionals to deal with it. The reinvestment was successful, but we need more of it so we can make sure we are hitting all areas of the taxpaying community equally and making sure that everyone is paying their fair share.
Q55 Mark Garnier: Do you think that the investment needs to be targeted at the skills as opposed to software, for example?
Graham Black: Nowadays, if you can get good software and good IT that will help. It sharpens up the ability of your professionals to use their skills where they are needed. The reality is most of our work comes down to professionals and you need well-trained staff on the ground to do it.
Q56 Mark Garnier: My next question is the asymmetry of the battle you are facing. On the one hand you have highly motivated and highly skilled tax advisors going out to people like Jimmy Carr and so on, giving them advice that they believe is legal but definitely not within the spirit of the law. On the other hand we have your members who are trying to combat that. Do you think there is a significant asymmetry between the private sector and what you are trying to do to combat tax avoidance?
Graham Black: There is certainly not an asymmetry in terms of skill. There is an asymmetry in terms of reward. Our members think we are doing the right thing. They are very proud of what they are doing. They are bringing money into the Government. They are making people pay the fair and right amount of tax that Parliament has said they should pay. On the other hand, you also have to look after your family and your personal circumstances. We have always accepted that we will never be paid the same as PwC partners, but we do expect that we will be paid a reasonable and fair rate. That has been undermined over the last few years, and therefore the chances of us losing that experience has gone up significantly.
Q57 Mark Garnier: What you are saying is you have not lost the experience yet, but you run a big risk of losing it?
Graham Black: We are losing some experience.
Q58 Mark Garnier: There are three things here-there is the skill of the staff, there is the volume of the staff in terms of the resource, and there is the remuneration of the staff. You are saying the skill is there, so the skill is okay; they are clever enough to do it. You are saying there are not enough of them to be able to tackle the whole problem, and the risk inherent in the system is that as staff get lured away more and more with bigger and bigger salaries, eventually they are going to say, "Do you know what, it is just not worth me sticking around here". Does that summarise what you are saying?
Graham Black: That is right. We are losing some senior members. It has been pointed out by the member of the Committee. Partly, we have a Central Government initiative that says, "You will lose 20% of your senior civil service". In our department, our senior civil servants are not simply bigwig managers; they are actually people delivering tax on the front line, dealing with PwC or KPMG partners, dealing with the major tax issues, so when you lose them you lose some of your best people and some of your most experienced people. That was not an HMRC decision-that was a cross-Government decision-but that will have its impact and we are seeing that at other grades as well.
Q59 Mark Garnier: Have you compared it to another department, for example Education? Do you think that it is a much more serious problem for a department like HMRC than it is with another Government department, where most of the delivery is on the front line in schools or hospitals or wherever it happens to be?
Graham Black: I am probably not in a position where I can comment on the Department of Education or Health.
Mark Garnier: Just generically.
Graham Black: All I can say is that for our members, there is a real obvious read across between the work they do and the people in private sector doing the opposite, if you like. They can see very clearly the comparison between the way in which they are rewarded and the way in which the private sector is rewarded, and there is a very clear path for them to move from one to the other if they want to. That is not necessarily always replicated in other areas of the civil service, but I would not like to comment on them because they probably have their own pressures as well.
Q60 Mark Garnier: No, sure. Does the flow go the other way? Do you ever get people coming from Pricewaterhouse to HMRC?
Gareth Hills: We have recruited some avoidance experts to come to us, but they are normally on sort of fixed term appointments.
Q61 Mark Garnier: So it would be three years to supplement-
Gareth Hills: Two to three years, and then a transfer of knowledge and back out. I think all I would add to what Graham said, is that it is always going to be the case. The taxpayers who are determined to avoid and evade tax will have the money to pay armies of advisors, and we are not in that position, but it is also true that tax planners are continually devising more convoluted schemes; evaders are becoming more determined to do so and cover their tracks in innovative ways. I think that is why we continue to argue that the success of the £917 million investment shows why HMRC deserves further reinvestment, and why HMRC needs a skilled, trained, developed and properly rewarded cadre of senior professionals in order to counter that avoidance and evasion now and in the future.
Q62 Mark Garnier: One last question; getting back to staff morale, given the fact that you are facing these costs and you have these three areas which are worrying, we have also had in the last 18 months or so a huge amount in the press about people avoiding tax and evading tax, like Jimmy Carr, Goldman Sachs, and other famous names. Given all that is going on and that we have talked about, what effect has all that had on staff morale? Peter?
Peter Lockhart: Thanks. I may be misremembering things, but I cannot imagine that five years ago the issues of tax avoidance were so heavily in the news and that the concept of paying your way-if you live and work in this country-is now much more in the public consciousness. I do think that has actually had, or will have, a positive impact on the work and the way that our members value the work that they do. I do just want to say that in no other business would you have something called a reinvestment; even in your report back in July, you had big inverted commas around the "reinvestment" word, because, as Graham said, taking £3 billion away and giving you back just under a £1 billion beggars belief, so all we would say is let us have proper resources. If there is an asymmetry, then let us try to address that. While I am not a betting man, if I knew that for every £1 I invested I was guaranteed to get £7 back-which is the basis of the settlement for the reinvestment for the £1 billion for £7 billion yield-then I think I would probably double my bet. There is an opportunity here to invest in HMRC properly. Let us not pretend this is some kind of investment; it is about money being taken away.
Mark Garnier: You will only get diminishing potential returns, I think your first billion may get £7 billion back, your second billion may only get £3.5 billion, and your third billion may break even.
Peter Lockhart: So it is more, so the commitment is a billion invested and, by the end of the spending review period, the tax yields will be increased by £7 billion. That is the commitment that HMRC has given, and I am sure they will meet that commitment. Let us see some proper investment. The logic is there; if you invest in HMRC you will collect more money in. So let us have some confidence from the Government, or whoever makes the decision about this, to properly invest in HMRC and properly address the tax gap, however we value the size of that tax gap, let us get the money in and stop closing schools and hospitals to fund that lack of investment in HMRC.
Q63 Mr Tyrie: I just think we need to put down the odd marker here. As has been pointed out, the relationship between increases in expenditure on the revenue and return and the high yield, are highly controversial, and none of those calculations take account of, it is too difficult, the whole economy effect, increasing the revenue, and the compliance burden that may come with it. What all those effects are, I think you would agree, is way beyond what we are looking at today, but it is more complicated than you put it, would you agree?
Peter Lockhart: It is complicated, but I think that what we are showing is that there is some logic between the fact that if you invest in the department that collects tax on the basis that you want that to grow seven-fold, then let us be confident about that assessment and invest properly so we do not have to put inverted commas around the word "reinvestment".
Q64 Mr Tyrie: No Government has ever sought to drive that ratio down to 1:1-I just point that out as a fact,-and would you agree that that might be because of some of the factors I have just raised?
Graham Black: It is undoubtedly true; it is always complex to say if you invest £1 you are going to get £10 or £9 or £11, but at the moment we are not anywhere near the sort of significantly diminishing market returns that Mr Garnier talked about. At the moment, if we invest and we get £8 back instead of £9, well, that is disappointing, but you are still £8 in rather than the £1 expenditure.
Mr Tyrie: Okay; thank you very much.
Chair: I just work on the basis that it is clear that certain people are unwilling to voluntarily agree to pay their fair share, and unless there are resources put in to ensure that in those circumstances they are chased up on it, they will continue to behave that way, but it is an argument that will go on. Gentlemen, thank you very much.
Examination of Witnesses
Witnesses: Paul Aplin, Chairman, Tax Faculty Technical Committee, Institute of Chartered Accountants, England and Wales, Robin Williamson, Technical Director, Low Incomes Tax Reform Group, and Richard Baron, Head of Taxation, Institute of Directors, gave evidence.
Q65 Chair: Gentlemen, thank you for coming. Mr Aplin, first of all, I want to congratulate you. We made some suggestions arising out of past evidence, and immediately those recommendations were published you set to work and it appears as though as they have borne fruit in a very nice way. Would you like to say something?
Paul Aplin: Thank you. I think your report last July provided the catalyst that was badly needed to get a conversation going, and I am very conscious that for some within HMRC that was perhaps a difficult conversation to enter into, but the invitation was readily accepted by Mike Clasper, the then Chairman. We had a very constructive first meeting with Mike and some of his senior colleagues around this time last year and we based that conversation very much on the recommendations of your report. We looked particularly at some of the service issues; we looked at your recommendation that people from HMRC should actually get out and see it through the taxpayers’ eyes, I am trying to avoid using the word "customer", and we also picked up on your recommendation that HMRC should try to agree some performance measures with its external stakeholders. The first phase of the work was very much focused on getting people out of HMRC to see it through the taxpayers’ eyes. I think that was a massively successful piece of work. We achieved more by getting a few dozen people out to see it through "their customers’" eyes than in years of sitting across the road in Parliament Street trying to explain the problems to them. We then moved on from that to look at some specific things we could do to try to prove that we had better communication going, and the first one we looked at was the employers’ end-of-year form, which is not the most exciting of subjects unless you spend your life doing tax, but 12 months ago it was the major irritant. There was a perception that HMRC was more interested in trying to generate penalties and catch employers out for late filing than in actually getting the forms in. What we managed to do this year was reverse the process by putting in more reminders, better guidance, and getting the first penalty letter out, not when people had accrued four months, but when they had accrued one month’s penalty, and I do not think I am breaking any great secrets if I say that HMRC even trusted us to do the first draft of some of the letters. That was a huge change in attitude from keeping us at arms’ length to really talking to us in a way that might just help get a better process.
The end result of that process was that something like 70,000 fewer employers faced a penalty this year, and of those they were facing £100 penalties, not £400. There are two or three other things along those lines that I think represent real wins, but underneath it all I think the most important thing is the change in attitude from being unwilling to talk to being willing to talk openly about what is going wrong.
If I could just for 30 seconds mention one other thing, because I think it was a huge win, and a really important one. Last year the major irritant was really those end-of-year employer returns; this year, one of the really big irritants has again been call centre performance. The last time I appeared before you this was a major issue, both the time taken to answer calls and the quality of the call handling once you were through, so about two months ago we raised that issue with HMRC; it was the last meeting that Mike Clasper attended with us, and it was the first meeting that Lin Homer attended, and they took the challenge, and they put a 1,000 extra staff and £34 million of their budget on to call centres. Now, that is a pretty good response. I am very conscious that is only a reallocation of budget-it is not new money-but at least it showed a willingness to listen to where the problems were and divert some funds to address the problems. There is a big "but", but I think we will probably come on to that at some point when you ask us about RTI and some of the other joys that are coming; but the overall feel of that engagement over the last year, and there is no doubt that was triggered by the report, is that we have made progress in terms of getting engagement and being listened to.
Q66 Chair: I think you created a good history. In the meantime, there has been a report on Select Committees that say we, and the Departments, just go through coming in front of us, enduring a bit of pain, and then they are free for another year. We clocked that, we recognised that each committee was raising important things, then the next committee the next year was starting from afresh without any reference, and so we tried to put down a number of markers so that-to be fair to the Departments-we could work together with them. You took the initiative and triggered it off; we are seriously very grateful to you. How permanent do you think this is going to be, though? I mean, Lin Homer has taken over from Mr Clasper. Why not the Chairman? Why Lin Homer? Does that matter? Has she started? Are you noticing any difference? Do you think this is a temporary relationship, or a real full-blown romance that will deliver good results?
Paul Aplin: Like a lot of full-blown romances that go beyond the early days, you have to work at the relationship to keep it going, and I know we are going to have to. Initial impressions of Lin Homer and the new team, most of whom I have now met, are good. They have really picked up the challenge that Mike Clasper picked up, with a different mind-set, and the mind-set is very much, if we going to use the word "customer", we have to start thinking about how our customers see us, which is really what we were all wanting them to do 18 months ago. I think the new team do see things in that way. If I can give you something that is purely anecdotal-which I may or may not be supposed to share, but I will anyway-I went to see Ruth Owen, who is the new Director-General, Personal Taxes, a few weeks ago, and I saw her in the meeting room just across from Lin Homer’s desk. The last time I was in that room, the walls were bare. This time, the walls were absolutely wallpapered-I can use no other word-with performance statistics. I do not think they did that just to impress me. It was an awful lot of effort if they did, but the impression it made on me was that suddenly the focus is on how bad some things are, and on how to get them right.
Q67 Mr Ruffley: In our report last year, we said that we expected, and I am quoting the words, "To see meaningful progress within the next 12 months in developing a series of performance indicators that credibly reflect customers’ end-to-end experience of dealing with HMRC", could you, Mr Aplin, just say something in detail about those performance indicators and how you would measure meaningful progress?
Paul Aplin: That is probably the area that is giving us the greatest difficulty. We consciously put the "getting out to see it through customer eyes" exercise first, and we also consciously tried to look at other work that was being done on service standards so that we did not inadvertently duplicate things that were already being done; so the performance measures work really only started around three months ago, and as soon as we started looking at that issue, we realised just how complicated it was. We are very keen to avoid simply coming up with measures that are targets that do not really achieve results for taxpayers.
Q68 Mr Ruffley: Can I just interrupt? Why complicate it? Why is it more complicated than other PIs that one might use in other parts of the public service? Can you give me an example of a complication?
Paul Aplin: Yes, I can. I can give you an example of something that is very easy to measure, which I hope you will see being measured very quickly, and an example of something that is far more complicated, where I think we have to take great care. The example of something that I think is very quick to measure is, again, a major irritant at the moment; the length of time it takes for the telephone to be answered, and the number of times that you actually hang up. I believe those things can be measured pretty easily, and I think that that is a pretty objective measure. I would regard that as something that can be done easily that is not open to misinterpretation. The length of time it takes for your call to be answered is a fact, and all you then have to look at is what might be acceptable. If you move to another area such as post, you could look at the length of time it takes to get a reply, and you immediately then get the problem, what is an acceptable reply? Is a reply, "Thank you for your letter; I will give you a full reply within 30 days", acceptable? I do not think that it is. Is an acceptable reply, "HMRC has answered your question to its satisfaction"? That might not be to the taxpayers’ satisfaction. There is a quality element that comes in. You can easily measure the time to answer. Once you have try to put in the quality measure, that is the bit we are struggling with at the moment, but I promise you we are working hard to try to come up with some measures that we think are believable. If we just come up with some measures that, frankly, are open to interpretation or a wide amount of subjective judgment, I do not think we will achieve very much. We need to go initially for measures that are not open to misinterpretation.
Q69 Mr Ruffley: When you say it is three or four months or so that this has been progressed, when would you expect to produce the first cut of the results once the PIs have been refined? When will this be made open and transparently available to everybody?
Paul Aplin: That is really more down to Lin and her team than it is to me.
Q70 Mr Ruffley: What have you picked up from them by way of making this process acceptable to this Committee?
Paul Aplin: Picking up a comment from a previous witness, if I was a betting man, which I am not, I would put a reasonable amount of money on it not being very far away; weeks, not months.
Q71 Mr Ruffley: That is helpful. Is there anything, Mr Baron and Mr Williamson, that you would like to add to any of that?
Robin Williamson: If I may; thank you. Certainly the engagement we have had with HMRC has been of a very much higher quality since the initiative that Paul has been describing started, and there have been other types of engagement involving the voluntary sector for the benefit of those who would otherwise be unrepresented to taxpayers. Specifically coming from the group called the Clasper Group, I dare say we shall need to think of another name for it now, but bereavement has been one area where the tax charities have worked quite closely with HMRC and have developed some good strands of work, including a helpline, which looks not just at the affairs of the deceased taxpayer, but also at relatives of the deceased and survivors, which is equally important. There is an effective email facility whereby voluntary sector representatives can feed through details of difficult cases and get good people at the other end, in HMRC, to look at them and come back quite quickly with sensible decisions. The Grant in Age Programme has worked quite well. My own organisation has been involved with some of the projects that this has sparked off, and good use has been made of the £2 million or so investment in grant aid at the last spending review. In fact, the HMRC put out a press release about this time last year saying that of that £2 million there had been about £16 million extra tax declared, showing that-picking up on a previous discussion-good investment in the right place can really pay good dividends. We hope maybe at the next spending review that £2 million might become £2 billion or even more, so a lot of good work has been done. But, as Paul has mentioned, we still need some time to see it being fed through into the actual perception of individual unrepresented taxpayers, for example, who are trying to get an answer to a letter or who are trying to get through on a telephone line. It is a particular problem if you are trying to get through on a telephone line and you are a taxpayer on a low income, and you use a pay-as-you-go mobile; it is probably costing you about 40 pence a minute, and you are having to hang on.
Q72 Mr Ruffley: I understand that, but in answer to the question, "Is progress being made?" Mr Aplin is working on some specific PR; can you say that your colleagues, and your experience, are finding better customer service?
Robin Williamson: Better engagement to HMRC and better customer service for representatives within the voluntary sector, which is yet to find its way through to the unrepresented.
Q73 Mr Ruffley: Okay. I would just like to move on to a separate issue relating to costs. Our Committee, last year, expressed concern that efficiencies achieved at HMRC could result in increased tax compliance cost for individuals and for businesses and, I wonder, Mr Baron, wearing your organisation’s hat, whether you could tell us if there is any evidence that you have seen that demonstrates whether that has indeed occurred, i.e. greater compliance cost on business.
Richard Baron: We have no specific evidence that can tie it down to a particular number, except that there are a couple of things I would like to draw your attention to, which should, in the long term, make significant cost savings all round for revenue, and for the taxpayer, where we have had specific grumbles from members saying, "This is going to cost me X and Y in the short term", and these are computerisation things, iXBRL filing for corporation tax returns, and the move towards real-time information.
Q74 Mr Ruffley: Has your organisation done any piece of work in the last year to measure tax compliant costs for any of your members?
Richard Baron: No, we have not.
Q75 Mr Ruffley: So is it anecdotal that it is about the same, or it is getting a bit worse with certain businesses and a bit better with others? I mean, we often hear from business organisations and very reputable ones, such as your own, that the tax compliance burden and the non-tax regulatory burden has gone up. What I am trying to probe is whether or not, on tax compliance, there is any data that you are aware of or that you are going to try to unearth, to measure whether or not tax compliance for business is about the same, better or worse, than it was 12 months ago?
Richard Baron: We have no data on that. My feeling, from the kinds of communication I receive from our members complaining about this, is that is it is still about the same.
Q76 Mr Ruffley: Fine. Mr Aplin, is there anywhere this Committee could go to find a measurement of the burden of tax compliance for corporates? Is it a meaningful question? Is it a question that is very difficult to come up with sensible figures for?
Paul Aplin: I think it would be very difficult to come up with meaningful figures if you are trying to look for a global figure. I think where it is possible to measure the compliance burden or the increase or decrease in it, is by looking at specific areas, and you have just mentioned too, for example iXBRL and RTI. We have been dealing with iXBRL for the last 18 months. For small and medium-sized businesses, there has been a compliance burden. I can give you some idea from my own experience of very small companies who might only have an annual bill from us of, say, £600 or £700, faced with an additional £100 on their bill simply to comply with iXBRL. In percentage terms, that is a lot for a small business. Larger businesses, and large for us is very small for the top 10, but £200 million turnover-for our largest tax compliance client, it probably meant an extra £500 or £600. We have also absorbed the increasing cost of the software we buy, so there has been an extra burden there, and I think it is disproportionately larger for the smaller businesses. I do not know if you do intend to come on to RTI; if you do not, I will mention it now.
Mr Ruffley: Please.
Paul Aplin: I have two staff dealing with payrolls full-time at the office; they are extremely worried about the extra burden that RTI is going to bring. I find the idea that RTI is going to reduce employer compliance burdens utterly bizarre. It cannot reduce the employer’s compliance burden. It increases it. Again, what I am really worried about is the burden of small businesses with RTI, and there is one particular issue at the heart of this that is causing most of the problem. The problem is RTI requires an employer to make their RTI transmission on or before a payment date. That sounds great. If you are dealing with a very large business, that is probably the way a payroll functions anyway. If you are talking about a small business, for example the village pub, it is busy on a Saturday night, the landlord picks up the phone and gets a couple of people in to help out. He pays them cash at the end of the evening. Is he really going to have to do a RTI transmission on or before taking the cash out of the till to pay them? What about small businesses who have employees on very low incomes who have salary advances? Maybe that is the only way they can get through the month and pay for their shopping? So, instead of one payroll a month, we now have to do four RTI transmissions. Can I give you two more examples?
Q77 Mr Ruffley: The point is well made, and it is certainly worth developing. I just have one question, which is on a different subject, but to you again, Mr Aplin, if I may. There has been some significant press interest in the last three or four days regarding the child benefit change on 7 January, and I just want to confirm a couple of things, because if you do not know this, then no one will. Rather than the child benefit being deducted at source, it is the case, is it not, that it is going to be clawed back through the tax system?
Paul Aplin: Correct.
Q78 Mr Ruffley: Is the estimate of 500,000 people now having to fill in a tax assessment form for the first time a realistic figure for the numbers who will have to start complying, because they will have to have it clawed back from their payroll?
Paul Aplin: The figure does not surprise me. My understanding is that figure originated from HMRC itself.
Q79 Mr Ruffley: Yes. My second point is that a Deloitte’s tax director has said that various anomalies are cropping up, and this has been extensively in the press, and I just want to check that we are not going to be barking up the wrong tree. They give an example of an estranged father who is claiming child benefit for children, presumably because he sees them at weekends, I do not know; an estranged father who claims child benefit for children who nevertheless live with their mother. Where this father has a new partner, who happens to earn more than him, that that new partner might be liable to pay the money back through the claw back mechanism. First of all, that is a possible scenario, would you agree with that? My second question is, is it a scenario that is an anomalous scenario; is it likely to become a big problem? I know there are just under 120,000 divorces per annum in the United Kingdom. Is that the sort of thing that we should be worried about, and the revenue will be tied up with, or is it just a bit of a whacky example?
Paul Aplin: Okay, perhaps that is an-
Mr Ruffley: I am not suggesting that you attack the Head of Private Client Services at Deloitte who posited this scenario, but if you want to declare war on them, fine. I just generally want to understand whether or not we are looking at chaos in the administration of child benefit, because that is what some of the respectable newspapers have been insinuating.
Paul Aplin: I completely agree that particular example will give rise to problems. There are far more basic situations that give rise to problems. We have a situation where one taxpayer receiving a benefit, or where one person receiving a benefit-they do not even have to be a taxpayer-can generate a tax charge on another person. That is a very interesting situation. We have a situation where someone who has to declare that they are liable to this charge, in theory, has to give notice to HMRC before the person whose income might be putting them into that charge has to report their liability. There are a number of practical issues around the child benefit change and around RTI that I think,-maybe chaos is too stronger a word, but I am extremely worried that that extra £34 million that has gone on call centres-the extra 1,000 staff-is not actually going to be improving performance; they are going to be coping with all of this. The idea of putting another half-million tax returns into the SA system does not strike me as recipe for more efficiency.
Mr Ruffley: Mr Williamson, do you wish to comment on this?
Robin Williamson: If I may just add something on the child benefit charge, and also, if there is time on RTI-
Q80 Mr Ruffley: If you just hold back on RTI, because I think that is going to be picked up by one of my colleagues, but on child benefit, I want to put a specific question to you. Again, from commentators, it has been suggested that for this change, due to take effect on 7 January, the rules and the guidelines explaining how this will work have not actually gone out yet. Is it not rather short notice, or do you think that letters going out this month is adequate time for people to comply from 7 January? What is your instinct on that one?
Robin Williamson: It is certainly short notice in terms of the amount of detail that people are going to have to assimilate to make the right declarations and so forth. Obviously, for self-assessment purposes-if they are going to be going into self-assessment-then they have another year before they actually have to do the tax return, but in the meantime the actual impact will take effect from the start of the period when the child benefit is paid, and child benefit of course is paid weekly as opposed to tax which is assessed annually. So there is a bit of a mismatch there already, and somebody is going to have to pay tax through the self-assessment system 18 months down the line because somebody else is receiving child benefit on 7 January. To that extent, yes, it is quite short notice. The point I was just going to mention was that we have seen precisely the situation we are talking about; how to identify a couple with tax credits. Tax credits have been rather plagued with a number of compliance investigations designed to ferret out undisclosed partners; they tend to use the credit reference agencies and take data from there in order to decide whether or not somebody has an undisclosed partner, whether they should be making a single claim, or whether they should in fact be making a joint claim. For example, if there is still a trace of an ex-partner from two or three years back on the credit reference agency’s report, then HMRC will have a tendency to stop the tax credits claim and say, "Right, you should be claiming with your partner", who in reality they no longer have, who has long since vanished off the scene, and it takes a very long time, because appeals are taking up to six or seven months to process before they get the claim reinstated, if HMRC’s initial assessment happens to be wrong, which it is in about half of cases. We are likely to see this precise scenario worked out again in terms of deciding who is living with whom in order for the child benefit charge to be administered.
Chair: Thank you very much. I am going to ask Teresa to take up some questions, and I will give my apologies. I am chairing another meeting in seven minutes’ time, and it is eight minutes away. Mr Ruffley will take over the chair, but thank you very much, and thank you, Paul and Robin, for taking up the initiative. It seems to have helped everyone. Thank you.
In the absence of the Chair, David Ruffley was called to the Chair.
Q81 Teresa Pearce: Just on child benefit, taxes have always been levied on individuals, and this seems to me like a watering down of independent taxation. Where one person’s circumstances have to be told to another person, it could be their husband or their partner, but actually that individual privacy of your tax affairs has been something that was hard fought for, and has been in place for 20 years or more. It seems to me that this whole issue of child benefit is moving away from the idea that individuals are taxed on their individual income to the whole idea that is in the DWP, which is taxation of family units. Does that seem the same to you? What they are asking people to do is to ask one person about their income and to declare it on another person’s tax return; is that compatible with independent taxation?
Robin Williamson: No, in a word, it is not. It is also, as I say, having a mismatch of the tax and the benefit systems of different periods and different recipients with the benefit being paid to the main carer of the child, usually the mother, and the tax being collected from the higher earner in the household. That is often the mother’s partner, if the mother is spending a lot of time looking after the child and is unable to go to work the same hours in order to earn at the same level, but it could be somebody in a different household, as we have just heard. Yes, it is really driving a coach and horses through the whole concept of independent taxation. If you want to form a relationship with somebody, you might have to ask them what their income is in case it is going to impact on your child benefit.
Q82 Teresa Pearce: Thank you. Real-time information: I have listened to what you said earlier about P35s and the end of year returns, and there has been a very rapid move over a short period of time in many ways to the laissez-faire attitude some people had to P35s. It was quite common at one time that people would pay during the year and reconcile at the end of the year; obviously that has been tightened up and there have been penalties for not getting returns in on time, and you would be chased up if you did not pay every month, so there has been a really big learning curve. But to go from that to actual real-time information so soon-although that should be the direction of travel-is going to be a disaster, I think. On the Work and Pension Select Committee, we have been doing a lot of work into universal credit and we had HMRC in front of us, and I said I did not think enough employers were aware of what was actually going to happen, and they said it was absolutely no problem. What about the employers that you all deal with; is it a problem? Yes, you are all nodding.
Richard Baron: Yes, absolutely. Potentially, there are obvious problems like the one that Paul mentioned, created by this rule you have to submit on or before the time of payment, and that really does need to be changed to on or before, or within 24 hours after, at least. I think the way to tell to what extent it is going to a problem is going to be look at the results of the pilot that they are running. There are two issues with that. I understand that one of the issues is that they do not have enough employers in the pilot who are going to have specific difficulties with it, like the pub example; so one needs to look at that. The other issue, for which I do not have the information, and I would encourage the Committee to go and find it, would be, because it is a pilot, they will be keeping a log of problems that arise so that they can see what has gone wrong and what might need to be tweaked to change it. I would encourage the Committee to ask for the raw data, the raw log of problems, obviously with taxpayers’ names blotted out, but I think you are going to learn a lot more from that than you would from a summary of how it is going to be prepared for you by a senior official.
Q83 Teresa Pearce: On the pilot, clearly, I do not know who is in the pilot; there are a range of employers, but they will be a range of employers who work with HMRC in a pretty friendly way, I would have thought, and they are pretty much compliant. A pilot surely should have a range of all types of different employers, not just ones that are likely to be able to fulfil this. One of my big concerns with the pilot in the way it is running at the moment, you have three aspects of real-time information: you have the employer who has to submit it, HMRC is meant to do something with it, and then you have the payment that goes through BACS to DWP and they look at it. What is your understanding of what HMRC are meant to be doing with real-time information; what is the process? You understand what employers have to do; what is your understanding of what HMRC are actually meant to be doing with that data? Do you have any understanding? Do you have thoughts about it at all?
Robin Williamson: Generating PAYE, payslips, codes and so forth for the individuals who are being paid.
Richard Baron: Yes, that is the main idea. You can potentially adjust it through the year so as to get a much better chance so that it will be right at year-end, and that plus the general automation I think makes it a good thing. Perhaps not a good thing for all employers, but a good thing for those who are operating computerised payrolls anyway, quite independently of the other side of it which is facilitating the benefit reform.
Q84 Teresa Pearce: So the real-time information is a good idea, because it means errors can be found more quickly; people will be coded correctly? You will not get the situation you had a few years ago where people had three different jobs and they had a code on each job, and were massively underpaid? But one of the other things that HMRC are meant to be doing with real-time information is they are meant to be checking that calculation when it comes in, and making sure it reconciles with what is actually paid to the person. It is my understanding that that is the bit they are not doing, but I do not know whether you have had any talks with anybody about what they are doing with this information when they get it?
Paul Aplin: Like Robin, I would like to think that it will mean they can generate more accurate in-year PAYE codings, but I have to say my concerns at the moment are more focused on the burden on employers. Sorry to come back to it, but I really feel some attention has to be paid to this idea of "on or before", because in the real world it cannot be done by many small employers. The sooner that problem is recognised, and the sooner DWP recognises that it has to accept that, the sooner we can actually move to an RTI system that will work. If DWP does not recognise that, and insists that HMRC carries on insisting on "on or before", what will actually happen is either HMRC will have to levy penalties on all those employers who cannot do it, and there will be lots of them, which is not going to be a great place for HMRC to be, or it has to turn a blind eye to non-compliance. Would it not be far more sensible just to accept the real world the way it is, and do something for those small- and medium-sized businesses who cannot actually do this? There is a simple answer. Does it really have to be on the day reported? Why cannot we just report on the 19th of the month? That would remove the bulk of this problem. It would enable small- and medium-sized employers to comply fully with the law. It would stop HMRC having to levy penalties on people who are trying their damnedest to comply, but who cannot, because it is not the way the world works. I cannot honestly believe that UC would fall over simply because information is coming through on the 19th of the month, rather than this absurd idea that UC has to operate on the anniversary each month of the first initial claim.
Mr Ruffley: I think the point is well made. I just remind the witnesses, we are going to have a vote at 4.00 pm, and I do want to make sure Mr Garnier has his say.
Q85 Teresa Pearce: Just one last question. Do you have any idea of the percentage of employers who do not file online?
Robin Williamson: A large number.
Teresa Pearce: Smaller employers?
Robin Williamson: If you take the numbers of people, adults, within the UK who have never used the internet, it is over 8 million, approximately 16.2% of the adult population. Many of them will be people with disabilities or older people, and it is precisely those two groups who tend to form a large sector of the micro-employer business. The FSB has quoted a recent survey of theirs which shows that about 45% of the Federation of Small Business members are over the age of 55, so that puts you squarely in the age categories having difficulty going online. I think that will be an enormous problem and one which HMRC has not addressed at all, either in the pilot or in the impact assessment.
Q86 Mark Garnier: Just one very last quick question on child benefits; there are a huge amount of problems included in all of this, but I think all of us would agree that the underlying point behind it was that those who have the broader shoulders should help bear the cost of sorting out problems. Would it just not be a far simpler solution to simply treat child benefit as a taxable income and tax it on that basis, and to hell with all the rest of it?
Paul Aplin: The answer to that is yes. I understand the policy intention, and my concern is all about delivery, not about policy.
Mark Garnier: Absolutely.
Paul Aplin: Yes. I think that is the answer.
Robin Williamson: It might be a simpler way of going about it, but would it be right in the context of the underlying policy aimed at the child benefit? There of course we go into a whole different discussion.
Mark Garnier: Yes, which I do not particularly want to go into.
Q87 Mark Garnier: I want to talk about two other things. Mr Baron, cost of compliance: when you came before us last year-and I think Mr Aplin and Mr Baron were together with us also-you made quite an interesting point that, actually, the cost of compliance is two-fold; it is the amount you have to pay in tax to pay for HMRC, and then it is also the cost of running your own internal tax compliance function within a business, or indeed as an individual. Since you came to see us, have you had any more thoughts on this? Have you come to the conclusion that actually it would be far better just to pay a little bit more extra tax, just to pass the whole lot back to the HMRC to do it for you?
Richard Baron: You will never be able to pass the whole lot back to HMRC, because an important part of the tax compliance is telling HMRC what has happened to you. They do not know that unless you tell them, so you can never pass the whole lot back. I have not really had any more thoughts on exactly where one should draw that boundary, and how much you should leave to HMRC and how much you should do yourself, and if it is cheaper or better for you to do it rather than to expect HMRC to do it and then pay more tax to run them.
Q88 Mark Garnier: Yes. Coming back to this important point, it is a very serious issue for small businesses having to do all the compliance of this. Paul Aplin? The reason I point to you is because you told us about this a year ago, and I think you were saying that now you have eight colleagues around you. You hear what they are doing. They have piles of work to do, as opposed to a few years ago they had a small pile. Any more thoughts on that?
Paul Aplin: I think that sense of a process being underway in which we do more of the work that HMRC used to do is still there. We still sense there is a flow of compliance work.
Q89 Mark Garnier: But it is coming to you?
Paul Aplin: Yes.
Q90 Mark Garnier: You are getting more rather than less?
Paul Aplin: Yes.
Q91 Mark Garnier: Do you think that this dynamic of more of the compliance coming in your direction results in less diligence when compiling the tax code because, at the end of the day, it is not HMRC who has to find their way through; it is you? Do you think the two are linked?
Paul Aplin: It is very difficult. In some ways, perhaps there is more diligence because any accountant taking on more of that kind of work is thinking about their professional indemnity risk, the risk of something going wrong.
Q92 Mark Garnier: No, I am thinking of the point of view of the people who actually write the tax code in the first place. Is all they have to do is just cast an eye over your work? Then actually it is you who has to do the work?
Paul Aplin: Yes.
Q93 Mark Garnier: Therefore, you have to be much more diligent about it. In terms of the people who write the tax code in the first place, given the fact that they are not the same people who have to be really effectively doing the work on it, does that mean they are less scrupulous in getting it right?
Paul Aplin: I think that is a danger.
Robin Williamson: It is certainly a danger as far as unrepresented taxpayers are concerned, who are told, "This is your responsibility to make sure that this is right". They are given very little guidance, or certainly very little guidance that it is intelligible to anyone but a tax expert, as to how to do it. Hence we get endemic problems with mistakes in coding which are not spotted by HMRC, and are not spotted by the individual, and mount up year after year. People are chased further down the line for the resulting underpayment of tax or, indeed, if they have paid too much tax with their code, and HMRC refunds it, they have to check that the refund is right because, if they do not, and it happens to be too much of a refund, then again they can be pursued by HMRC who will recover the over-refunded tax on the grounds that they should have known that it was wrong; even though, very often, the figures on which these refunds are based are estimates, but it does not actually tell you that they are estimates on the forms that you are given. So there is also a mismatch between what ordinary taxpayers are expected to understand about the tax system and the tools and materials and information and guidance they are given to enable them to do that.
Q94 Mark Garnier: Mr Baron, we talked about business, and we talked briefly about small- and medium-sized enterprise, but we tend to forget the medium-sized enterprise can employ up to 250 people with £25 million turnover, and actually an organisation with more than 10 or 15 people will start to have quite a good internal compliance function, and actually a lot of your members are going to be be micro-businesses; businesses that employ fewer than 10. Do you find that the compliance with tax rules is beginning to be destructive for those very small businesses?
Richard Baron: I think it has always been. We did a survey which I quoted when we spoke to you last year, in which quite a high proportion of people who said, "Look, if I had known when I was starting out what a hassle revenue was going to be, that would have put me off starting a business". I think what needs to be communicated across to the policy-makers and to people who devise the administrative systems is that the people in the Revenue and the people they talk to in their consultations-they do a lot a consultations-think that the world is made up of forms with boxes on them that you put numbers in and think in terms of tax rules. Most people out there running their businesses, they may be very good plumbers or decorators or restaurant owners or whatever; they do not think in those terms. Their world is not made up of rules and forms that you write numbers on, and there is that disconnect for that reason, people say, "What is all this?" I am not surprised that people are frightened of it and put off by it.
Q95 Mark Garnier: Can I turn, Mr Ruffley, to the slightly different issue of complex tax cases. There have been a number of high-profile stories in the media recently about tax avoidance-and you will have seen the Jimmy Carr one-all the way up to the Goldman Sachs one. HMRC have brought in this new Assurance Commissioner; do you think that is working?
Paul Aplin: It is really far too early to say yet. Edward Troup has only been in post for a few weeks. Of all the people who could have been chosen for the job, he is probably a pretty safe pair of hands. He is widely known to the tax profession, and I think he is seen as a safe pair of hands. We are only really going to know whether that job is being effective when he has had a few cases through his hands and we have seen results. He really has two jobs. He is not only the Assurance Commissioner; he is also Head of Profession within HMRC, and I think the main thing he has to be seen to do is to be independently minded. That is going to be a pretty tough thing to do, but he is a very capable man. I think, if anyone, he can do it.
Q96 Mark Garnier: Did you see the letter that Lin Homer wrote to the Treasury Sub-Committee in March that was published with the report Closing the Tax Gap, detailing the remit of what the new Assurance Commissioner was going to do?
Paul Aplin: I saw it at the time, but-
Q97 Mark Garnier: If you can remember at the time when you did look at it, did it strike you as being a very sensible way forward, and did you think what they were proposing is the right answer?
Paul Aplin: It was a sensible way forward, yes, but the proof of the pudding is going to be in the eating.
Q98 Mark Garnier: What would your measure of success be? What should we look for in a year’s time when we call you back?
Paul Aplin: In a way, the press is probably the litmus test. There has been very bad publicity over several high-profile cases, and if the bad publicity continues, then a rethink on the solution is needed.
Q99 Mark Garnier: That is a bit ad hoc, is it not? Whether or not the Daily Mail publishes a story is not a very scientific method to use as the litmus test of HMRC’s effectiveness.
Paul Aplin: It is not the test I would personally choose, but as the cases have come to light through journalists, or have come to such public prominence largely through journalists, unfortunately it is a litmus test that we still have to look at.
Richard Baron: I entirely agree that the press is the main litmus test. The other thing you could do, if you really wanted, would be to do what was done when there was controversy over the handling of a number of large settlements, when Andrew Park came in and looked at five large settlements under the normal conditions of taxpayer confidentiality, and report back on whether they were all correctly handled. You could do a rerun of that.
Mark Garnier: Thank you very much.
Mr Ruffley: Thank you, gentlemen. Thank you for being our witnesses today.