HM Revenue and Customs

Ian Swales Excerpts

Tuesday 5th February 2013 Westminster Hall

[Ian Swales (Redcar) (LD)]

I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on securing the debate and his knowledge of, and campaigning on, the issue. I hope that he was not referring to me when he talked of “failed accountants”.

I am a member of the Public Accounts Committee, so I deal with such matters a lot, and something that strikes us is that, despite the need to cut the deficit, HMRC is not a normal cost centre. It is a cost centre that brings in 100 times what it actually costs. Even if we take HMRC’s own estimate of the tax gap of £40 billion, it is worth remembering that the entire cost of HMRC is only £4 billion—a tenth of the tax gap.

HMRC faces not only its existing challenges, but major new challenges: the European Union, globalisation, the internet, rising customer service expectations and, as we have heard, tax avoidance on an industrial scale. On the very day of one of the PAC’s hearings on tax last week, the headlines in The Times were about a charity that hon. Members would never had heard of, although it got more money in the past two years than the British Heart Foundation, the Royal Society for the Protection of Birds and Cancer Research UK put together. Why had we never heard of it? Because it was a gigantic tax scam that brought in £176 million and paid only £55,000 to charity. It was a gift aid rip-off, and that is yet another area in which HMRC staff are needed.

The hon. Member for Hayes and Harlington mentioned customer service. HMRC officials told the PAC that they were proud that they were getting close to their target of answering 80% of calls in five minutes, but the industry standard is 20 seconds. We also need knowledgeable staff on the end of those calls, as is the case for banks such as First Direct, who can answer people’s queries and help them to do whatever they want done in one call. Face-to-face service seems to be disappearing, and knowledgeable face-to-face service certainly does not happen in my local tax office.

We need a new effort on globalisation and the EU. Last week, the big accountants said that they would like to see more people in HMRC’s transfer pricing department. The big four have nearly three times as many staff working on transfer pricing as HMRC. We also need a lot more people on investigation and enforcement to deal with the growing tax avoidance scandals.

There must be many opportunities for what I call “invest to collect” in HMRC. It has stated that whenever it looks at the business case for more staff, it typically gets returns of 17:1 or 11:1. Frankly, as a taxpayer, I would be happy with even 2:1, because investing £1 to get £2 sounds like a good deal. We need to invest to collect, and there are many ways of doing that.

It interesting that journalists and TV programmes seem to have no trouble getting right to the heart of tax avoidance. They do so on “Panorama” and in newspapers, so how come HMRC is not employing more investigators to go to the places such as the West Indies, where some people might have 12,000 directorships and there is a forest of brass plates on the door, to find out what is happening? If independent journalists can do that, it would not be difficult to have a much bigger unit in HMRC to do so. The gap is large, and we should invest in people to close it.

Finally, I have a special plea. Other Members have mentioned their areas, and I have been to the tax office at Thornaby, near Stockton. I am told that I am one of only two MPs to have visited a tax office over 12 months, so I urge all Members to get out and talk to the staff. People were disturbed that I wanted to talk to the staff as well as to the management, and it was interesting to find out what the staff were saying.

The Thornaby office is excellent but, as in all tax offices, morale has been damaged. My plea is to keep that office going. It is a good, low-cost place to be and, given the paucity of white-collar jobs on Teesside, it would be easy to get new people there to replace the 400 jobs that were lost in Middlesbrough when the tax office closed a few years ago. Middlesbrough has the second highest unemployment rate in the country, so the loss of those jobs was hugely damaging. We need more resource, and let us have some on Teesside.

--- Later in debate ---

[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]

Will the Minister give way?

[Mr Gauke]

I will give way, but I have a lot of material and a very short time.

[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.