HM Revenue and Customs

Andrew Love Excerpts

Wednesday 2nd March 2011 Commons Chamber

[Gregg McClymont]

I thank the hon. Gentleman for that observation. Clearly, this is a complex issue and there will be reasonable arguments on both sides, but it seems to me that it is a job in which morale is particularly important. I intend to refer later to the psychology of being a tax officer, which pertains to his point about raising more revenue.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

I want to make an observation based on a recent conversation I had with a tax expert. When the Government looked at the overall staffing reductions in HMRC as a consequence of the spending review, it became absolutely clear to all that the gaps in their ability to raise taxes were such that they would need to put something back, and that is the explanation for the £900 million.

[Gregg McClymont]

I thank my hon. Friend for that information. As a member of the Treasury Committee, he is well known for his interest and expertise in this area. What he said sounds not only plausible, but likely.

I am suggesting that short-term savings in HMRC could reduce the Government’s ability to maximise tax revenue in the long run. They reduce the likelihood that HMRC will be able to attract and retain the talent necessary to administer complex systems and crack down on fraud, and the hon. Member for Chichester and my hon. Friend the Member for Leeds East alluded to that aspect of the argument. It seems to me that there is a danger not only that revenue will be lost to the Government, as has been made clear in previous contributions, but that reducing services to the public means that the costs will be passed on to the public and to businesses, particularly small businesses. If HMRC is harder to contact or slower to rectify errors, costs for the public and business will increase. The hon. Member for Chichester eloquently set out the dangers for small businesses of this process of HMRC reform or cutbacks, or whatever we call it. It is clear to me that those costs will disproportionately harm those with the least resources.

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[Gregg McClymont]

I thank the hon. Gentleman for his observations. I was very interested in what the hon. Member for Chichester said about the merger. I come to that subject with little background knowledge, and I intend to do some reading on it, because at face value it seems to be a plausible reason for some of the problems that HMRC now faces.

[Mr Love]

Taking on board the point just made by the hon. Member for Hertfordshire, should that not be a further argument that now is not the time to be asking for further reductions in manpower? Because of the difficulties of the merger and the problems that it created, we should be trying to retain the expertise that already exists in HMRC.

[Gregg McClymont]

My hon. Friend makes a powerful point. If we do indeed have an organisation that is dysfunctional, to use the hon. Gentleman’s term, there is clearly a question about whether the way to approach managing such an organisation is to engage in severe cutbacks.

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[Priti Patel (Witham) (Con)]

I welcome the opportunity to discuss the work of Her Majesty’s Revenue and Customs. I pay tribute to the Treasury Committee for its work in scrutinising that organisation and for the many helpful inquiries it undertakes.

I have a particular interest in the administration and effectiveness of HMRC, because it is clear to me and to many residents and businesses in my constituency that it is a failing organisation that all too often treats people and businesses in the most appalling fashion. I have endeavoured to raise these points before in the House, but have had the misfortune to be unsuccessful in the ballot for Adjournment debates. I am pleased that I can now put these matters on the record in the House. I should add that I am immensely grateful to the Exchequer Secretary, who has faced a deluge of correspondence from me regarding the numerous cases in which my constituents have felt harshly treated by HMRC. I thank him for meeting me earlier this year to discuss the numerous complaints and concerns about the administration and processes of HMRC.

We are all aware of the highly publicised issues associated with HMRC, which range from problems with PAYE and tax credits to lost child benefit discs. Many hon. Members have touched on those areas. As constituency MPs, we see at first hand in our surgeries and in the letters we receive the distress and sheer misery that these mistakes and errors cause. I am exasperated by the extent and seriousness of the cases, and by the level of distress among the constituents who have come to me. Such constituents usually come to us in desperation, after experiencing tremendous difficulties in communicating with HMRC and in getting answers from it. They are the human victims of HMRC. I will draw to the House’s attention some of the cases that I have come across in my 10-month tenure as a Member of Parliament.

First, my constituent Mr Philip Wright has an ongoing dispute with HMRC that dates back to 1999, in the days of the Inland Revenue. It relates to employment and tax status in the construction industry—a notoriously complex matter. Six years later, in 2005, the case was heard before Colchester general commissioners, who ruled in Mr Wright’s favour. Despite that, HMRC refused to let the matter rest and appealed on the grounds that the general commissioners had misdirected themselves. The case has since gone from one tribunal to another, including a sitting two years ago at which neither Mr Wright nor his representative could be present. There have been suggestions of irregularity in the process, and HMRC appears to be making it as difficult as possible for Mr Wright.

It is now 2011 and the case is still ongoing. The cost to HMRC of pursuing the case his spiralled out of control and has gone well above the claim that it has against my constituent. I saw Mr Wright on Saturday in my surgery and the stress of the case has clearly had a devastating impact on his health and emotional well-being. I urge senior HMRC officials who are paying attention to this debate to reflect on this case.

Another distressing case in which HMRC has gone after a local business in a thoroughly disproportionate way came to my attention just this week. A firm in Witham sent its VAT payments to HMRC two weeks late because there was a delay in it receiving a payment from a customer. Instead of exercising a dose of common sense, HMRC is pursuing the firm for a surcharge of almost £5,500 on a VAT bill of about £36,000. Of course there are rules about paying taxes, but at a time when so many businesses are struggling, it seems thoroughly inflexible of HMRC to target such small businesses, especially when they have paid their taxes in full. I get the impression that officials are waiting like vultures to target their prey when they are at their weakest. The effect on businesses of that approach, as many hon. Members have said, is to put jobs and prosperity at risk. A £5,500 surcharge might seem like small pickings for HMRC, but for most businesses in my constituency, where 80% of the local jobs are in SMEs, such a sum could enable somebody to be employed or a financial investment made in the business. The instruments of government should be helping business and the private sector, not causing such unnecessary burdens and distress. I have written to HMRC this week about these cases, and I hope that, among the 70,000 people it employs, there are enough who will have enough common sense to do the right thing.

I have come across other cases in which businesses have suffered at the hands of HMRC. One business that was applying for VAT exemption encountered nothing but excessive delays. Another case, which landed on my desk in June last year, alarms me no end. A local business received what I would describe as a generic letter from HMRC on 1 June, stating that the business was £64,000 in arrears. The letter stated that that sum had to be repaid by 14 June, even though it arrived only on 1 June. That is a significant sum of money. During that 14-day window, my constituent made a number of attempts to contact HMRC about the issue, but no one would return any calls. It was not until I intervened that HMRC finally replied. Its inability to return calls, its automated actions and its generic letters cannot be justified. It would be a shock to anyone’s system to receive a notification of that nature.

[Mr Love]

I want to take up the point made by the hon. Member for Chichester (Mr Tyrie) about the shift in compliance costs from HMRC not only to small businesses but to individuals and large businesses. As that shift is already catalogued as having happened in recent years, does the hon. Lady think that the implications of the comprehensive spending review are that small businesses will have to meet even greater compliance costs in future?

[Priti Patel]

I do not, actually. Many other measures came out of the comprehensive spending review and last year’s Budget that will help small businesses to further their interests and, we hope, grow their businesses as well.

I come from a small business background—my parents have a small business—and I am stunned by the attitude and the bureaucracy associated with HMRC. Its lack of accountability is also deeply disturbing for all our constituents. I have had constituents in my surgery who have been reduced to tears when describing their own personal experiences and the distress that HMRC has caused them. In one case, a couple who had separated were having endless complications with their tax credit awards, and the wife was receiving demands from HMRC for the repayment of overpaid credits. In another, problems were caused by HMRC’s delay in processing the correct levels of tax credit for a constituent because—surprise, surprise!—HMRC had made mistakes with the information that it held on her, and my constituent subsequently had to supply it with a great deal of additional paperwork and ID. That involved a lengthy and inconvenient process.

I should like to draw the House’s attention to another tax credit case. It concerns a couple who received overpayments as a result of HMRC’s mistakes. HMRC even gave my constituents a reward of £35 in recognition of that. However, the errors mean that that family are now being pursued for a range of repayments and are undergoing another lengthy and bureaucratic process, even though they have done nothing wrong. Make no mistake, HMRC is effectively still persecuting them and treating them like criminals.

In all those cases, and many others, my constituents have endeavoured to do the right thing, and there has been no evidence of any attempt to avoid paying taxes or to mislead HMRC. However, due to an overly complicated tax system and what seems to be endemic incompetence at HMRC, my constituents, and, as we have heard today, many others, have suffered. My constituents feel that HMRC, with the full force of the state behind it, is effectively bullying them and persecuting the disadvantaged, the weak and the powerless, and that it fails to realise the worry, stress, anxiety and misery that its errors cause the businesses and individuals who are threatened. Those unreasonable actions defy common sense and undermine how HMRC operates and the tax system.