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The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a pleasure to serve under your chairmanship, Mr Howarth, and to respond to the debate. I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on securing it. He has taken a close interest in HMRC funding over a number of years. Although I did not agree with everything he said, I commend him for his consistency and the non-partisan way in which he has pursued this issue over many years with a willingness to criticise Governments of both descriptions.
Time may be short, but before addressing the points raised today, it will be helpful to set out some context by discussing the history of the resources available to HMRC over recent years and the results that it has managed to achieve with those resources.
As hon. Members will know, HMRC was formed a little under eight years ago by the merger of Customs and Excise and the Inland Revenue. At that time, it was made up of around 100,000 staff. The previous Government sought efficiencies and, as a result, staff numbers fell by around 25,000 between 2005 and 2010. As part of that process, the number of staff engaged in compliance work also fell each year, and by 2010, about 10,000 staff had been lost in those important revenue-raising areas.
In 2010, as part of this Government’s first spending review, it was crucial that we recognised the dual role that HMRC would play in contributing to deficit reduction, through both cost reductions and, more significantly, collecting additional revenue by tackling tax avoidance and evasion—a point that several hon. Members raised this morning. Our priority was to ensure that HMRC delivered a service that would provide the best possible value for money to taxpayers. Consequently, we required HMRC to make 25% efficiencies to reduce its costs. We then agreed to reinvest a proportion of those efficiencies to tackle avoidance and evasion. The result was a net impact of overall savings over the spending review period of about 16% and a net reduction in overall staff numbers of about 10,000. I say “net” because in that figure is an actual increase of about 2,500 in the number of staff HMRC deployed on its compliance activities over the period.
John McDonnell
The Minister mentioned the impact. One of the points made by PCS, ARC and the ICAEW is that the impact assessments religiously fail properly to assess not only the implications for staff, but the cost to business and taxpayers overall. Will the Minister look at, and perhaps consult on, how such impact assessments are undertaken and how they can be improved?
Mr Gauke
I will indeed. I understand that the NAO will publish a report tomorrow on cost savings in HMRC and the way in which HMRC has proceeded. Time prevents me from running through in detail all the areas in which there have been savings, but it is worth pointing out that there have been significant savings of £74 million in the price paid for IT equipment and services, and savings in estate costs through vacating buildings. It is important that HMRC seeks savings, but it is also important that we raise the revenue. A number of hon. Members mentioned the tax gap.
Ian Swales
It is a very important point. The Minister said that HMRC was required to lose 25% of staff. Was an assessment made of the tax that would be lost as a result, or was taking 25% of people out deemed to be tax neutral?
Mr Gauke
We ought to be clear about this and look at outputs rather than inputs. As it happens, the number of staff working in compliance and enforcement is going up under this Government—a reversal of what happened under the previous Government. Although we think that it is right to seek savings and efficiencies—if we can spend less on IT and less on estates, that is surely sensible—we also want to do more to raise revenue.
The reinvestment of efficiencies involves £917 million over the spending review period, and, in return, HMRC has agreed to bring in an extra £7 billion of tax every year to 2015. That means that, cumulatively, over the spending review period, HMRC will bring in about £20 billion of additional revenues, and an additional £7 billion every year thereafter. Additional revenues will come from a range of initiatives, including: increasing the number of criminal prosecutions fivefold; cracking down further on offshore evasion; and extending HMRC’s coverage of businesses, focused on providing resources to tackle high-risk areas.
HMRC results have shown that it can deliver the additional yield. As the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) noted, in 2011-12, it delivered £16.6 billion against its targeted increased yield of £15 billion, and is on course to deliver an additional £17 billion this year. In the light of that record of success, it was decided that we would exempt HMRC from cuts imposed on other Departments in the 2012 autumn statement. Instead, we made the decision to invest in HMRC in two separate ways.
First, we made a further, new £77 million of investment in HMRC to increase its efforts to tackle tax avoidance and evasion, through improving HMRC’s computerised risking systems; further strengthening the risk assessment capability across the large business sector; increasing the attention given to offshore evasion and avoidance, and—probably of most interest to hon. Members here—increasing the staff employed to target avoidance and evasion by the wealthy.
Secondly, in the autumn statement, we invested a further amount, totalling £77 million, to accelerate HMRC’s debt collection activities and bring in about £1 billion in tax over the period; to reduce tax credit error and fraud and reduce losses by about £0.5 billion; and to expand HMRC’s digital service to its customers, which will include help to small businesses as part of our initiatives to introduce growth into the small and medium-sized enterprise sector. My hon. Friend the Member for Cities of London and Westminster (Mark Field) is right when he says that we want to do everything we can to ensure that the burden on small businesses can be reduced and that it is easier to deal with HMRC.
Taken as a whole, the investment package will mean that HMRC will collect an additional £2 billion in 2014-15. That is over and above the £7 billion in additional revenue that HMRC will collect in that year as a result of the spending review settlement in 2010. On top of that, our investment in digital will allow HMRC to offer a modernised service to customers, while working more efficiently.
The Government have recognised the crucial role that HMRC has played, and will continue to play, in helping to manage the deficit we inherited. It is bringing in more additional revenues than ever before, and that is not the only area where HMRC is delivering well. The latest performance figures, from December 2012, show that post handling in local offices is the best it has been since HMRC was formed, with about 90% cleared within 15 days of receipt in recent months. The hon. Member for Newcastle upon Tyne North highlighted press reports saying that 100,000 items of post have not been dealt with, but that must be put in the context of HMRC’s receiving 200,000 items of post every week. We are talking about post that has by and large arrived in the past two or three days.
HMRC’s self-assessment filing system is a clear success: 92.9% of self-assessment tax returns for 2011-12 were filed on time this year—the best result since HMRC was created—and 82.5% of those returns were filed online, which is a new record. We are all aware of the difficulties that HMRC faced a few years ago in handling the fallout from the new computer system, but such difficulties are now behind it and it is on track to bring PAYE up to date by March 2013. We are also taking steps to improve automation.
I would like to say more, but it is sadly not possible to do so today in the time available. I apologise to hon. Members for not being able to address every question that has been asked. We appreciate what the taxpayer wants from HMRC. We want to raise revenue and reduce the tax gap. We are giving HMRC the resources to do precisely that. I will continue to work with HMRC to ensure that it continues to provide the best possible value for money for the taxpaying public.