HM Revenue and Customs

Guto Bebb Excerpts

Wednesday 2nd March 2011 Commons Chamber

[Mr Mudie]

That is a well-accepted fact. To be fair, the £900 million is an acceptance of what my hon. Friend says. Theoretically or on paper, this money is going back to bring in £7 billion-worth of tax that has not been collected for one reason or another. I would like the Minister to deal with the phasing of that £7 billion. As usual with the Treasury, this can be read any way. I know that we culminate with this £7 billion, but what are the targets for the years ahead?

The computer has also contributed to demoralisation in the Department. It is not just the computer, but the man in Whitehall who thinks that the computer is the answer, because pressing a button produces something and it does not argue back. As we have discovered elsewhere in government, that simply does not work under any circumstances. The Revenue saw the computer as an answer to its problems with the budget cuts and thought that the staff could be taken out. They were removed before the computer was up and running, before it became operational and proved to be defective. That is why we had the debacle at Christmas 18 months ago of millions of taxpayers receiving an unexpected and largely unwelcome envelope. I grant that some might have been welcome, but they were mostly unwelcome.

The 30,000 jobs are gone, but I have yet to mention the merger. It was particularly important for staff morale, because at the same time this brilliant Department—I suppose it was the Treasury—brought in McKinsey to do its thinking, and it ended up adopting a French model of “départements”. There were 36 such departments inside the organisation, which meant no joining together of the two departments with their great traditions and ethos, and no welding together of the best bits from both. Instead, the departments were broken up—everybody was broken up—and there were no lines of accountability or anything like that. It was a complete shambles. Steps have been taken to put that right, but some of the damage persists, which is another contributory factor. That is what has happened. It is not possible to take out 30,000 people, have a merger or reorganisation, load in additional work and duties and expect it all to work. It is not working; something has to be done about it.

The hon. Member for Chichester touched on the issue of taxpayers. When the new computer came in, as usual somebody in Whitehall said, “It is wonderful to have this computer in London, so we can shut some offices”—and they gaily did so. On paper that meant saving staff, costs and so forth. The trouble is that tax is a very complicated issue. The best of us—I say this because I am among them—simply cannot handle tax and the details relating to it. Two or three years ago I decided that my accountant was too expensive, and took over the job of filling in the forms myself. In the first year, I received £300 back; in the second year I was charged £1,500. Now I am back with my accountant.

The difficulties involved in dealing with tax are a fact of life. The closure of tax offices has been a disaster, along with the cuts in working hours and days. We have reached a stage in public life, at both local authority and national levels, when call centres may seem to be the answer but are really—I suspect—a way of placing a brick wall between the decision-makers and the public. They can be helpful when dealing with ordinary questions, but are often unhelpful when it comes to detailed matters such as tax. That is especially true when they are talking to the elderly and those for whom English is a second language. I am reminded of confused.com: call centres are unhelpful to anyone who is confused.

[Guto Bebb (Aberconwy) (Con)]

The closure of tax offices is an important issue in north Wales. I hate to be parochial, but I represent an area in which about 20% of the working population are self-employed. The need for self-employment is paramount in north Wales, because the economy is so fragile that unless we create our own job opportunities, we cannot work at all. Unfortunately, over the past few years we have seen the downgrading of the Porthmadog, Bangor and Colwyn Bay tax offices. The 20% of the working population who are self-employed must now travel to Wrexham and even over the border to be served, which is a big problem. As the hon. Gentleman has pointed out, when a small business is forced to use an accountant because it is unable to talk to—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We must have short interventions.

--- Later in debate ---

[Jesse Norman (Hereford and South Herefordshire) (Con)]

I speak in this important debate both as a member of the Treasury Committee and on behalf of my constituents.

We have heard about the prestige of the Revenue historically, and about the effects of the merger with Customs and Excise, and the hon. Member for Luton North (Kelvin Hopkins) just talked about its transformation into a benefits agency, and made a good point on that.

Although there has been a lot of discussion of costs, this problem is not just about cost cutting. It is also about a failed model of public service delivery, which is at least as important. To illustrate that, let me describe the situation we have found in Hereford. The tax office in Hereford was closed a couple of years ago with the loss of 90 skilled jobs, despite local protests, with which I was closely involved. We are talking about a high-quality employer in a county that is not a high-wage part of the country. That was a grievous loss to the local economy, and in my view a rather unnecessary one, as I will argue.

My second point concerns a local company—I will not name it—working in the area of defence, a small enterprise exporting very successfully. That business presented some concerns about the coding of its exports to the Revenue, and was then appalled to have HMRC take up residence, conducting a kind of fishing expedition through its accounts, which resulted in the Revenue demanding a substantial payment for tax allegedly not received. In turn, that involved huge amounts of time being taken on, and attention being paid to, dealing with this complaint against a very small but rather successful business.

These two points illustrate the effect of the transfer of compliance costs, which has been widely noted, from the Revenue to the people and SMEs it deals with. We have had the loss of a local presence through the tax office, and its replacement by a call-centre mentality that is often incompetent and impossible for the public to deal with.

[Guto Bebb]

On IT systems and call centres, is my hon. Friend aware that the current system is not compliant with HMRC’s own Welsh language policy and is also contrary to the Welsh Language Act 1993? As a result, I have constituents who are unable to deal with the tax authorities through the medium of their own language because the offices have been closed, or because the call centre or online service is not available through the medium of Welsh.

[Jesse Norman]

I was not aware of that and I thank my hon. Friend for his remark. Of course, historically, Welsh speakers on the other side of the border were very welcome to come to Hereford to have these issues solved, but unfortunately that option does not exist now.

The point is that it is not simply an issue of the cost cutting that has taken place over the past 10 years; the whole model of public service delivery has relocated that service away from local people and back to call centres, as we have heard. That has happened under the influence of a mentality bred by the consulting firms. In particular, one picks out McKinsey, which did a substantial piece of work for HMRC some time ago. This, I am afraid, has been the method by which this mistaken conception of public service delivery has been promulgated. Services, instead of being brought closer to people, have been removed from them. A use of technology that could have assisted the ordinary man and woman and small businesses in dealing with their tax affairs has ended up impeding them, and that has been a terrible and costly shame.

I would direct the current management of HMRC to what systems theory calls “failure demand”. Failure demand is not the cost of delivering a service, but the cost on the rest of the system when people fail to deliver a service. Failure demand in the Revenue has gone through the roof in the last decade, and the statistic we have heard about the length of time people spend on the telephone dealing with Revenue and Customs is a very precise quantification of this increase in failure demand. Essentially, instead of thinking of the costs on the system as a whole, the Revenue has been pushed into pursuing the lowest unit cost, which has encumbered the whole.

There is a parallel in the manufacturing industry. Historically, General Motors ran a production line and if a substandard car was on it, it would be removed from the line and the line was allowed to continue. The result was that these “lemons”, as they were called, built up over time and required a substantial amount of time to fix. However, the system itself never got any better because every time there was a problem, the lemon—the bad car—was removed from the production line. The Toyota approach was entirely different. Every time there was a problem with a car, the entire production line stopped. One can imagine the result: enormous pain for a time, followed by a dramatic improvement in quality and a dramatic fall in costs, because the system was no longer tolerant of failure.

At the moment, for the reasons we have described, HMRC has a system that is massively and very unhappily tolerant of failure. The Government are picking up this mess and will be seeking to make something of it over five years—I hope they will be doing so over 10 years. I encourage them to address not merely the issue of boosting the tax collection rates, but the failed model of public service delivery that underlies the Revenue and so many of our other public services. The Conservative party is committed to improving public services and this is a very good place to start.