HM Revenue and Customs

Jesse Norman Excerpts

Wednesday 2nd March 2011 Commons Chamber

[Gregg McClymont]

The hon. Gentleman makes a good point. My suspicion is that it will be a combination of all three. I will come to the skilling aspect, which it seems to me is important alongside the issue of number. If the costs are passed on to taxpayers, I suggest that they will fall disproportionately on those with the least resources—small businesses and poorer taxpayers.

To allude to a point made by my hon. Friend the Member for Leeds East, pensioners and other vulnerable groups will have to pay to phone 0845 numbers and will struggle to get through. Beyond the financial cost, there is the psychological anxiety caused by respectable working men and women having to worry that the taxman feels that they are not following the law. The psychological burden on vulnerable groups is worth considering alongside the burdens on businesses and other organisations.

I will focus for a moment on small businesses, although I will not take long as the hon. Member for Chichester somewhat shot my fox on this point. It is clearly okay for the big boys in business and the big organisations that can afford the finest tax accountants money can buy, but for small businesses every minute spent on administration, doing a tax return or conversing with HMRC is a minute less spent running their businesses. Usually, small businesses have much less slack to operate with. As the saying goes, “Time is money”, and any shifting of the burden back on to the taxpayer is likely to be deleterious in the extreme to small businesses and vulnerable groups.

Several Members have referred to efficiency and effectiveness, and that brings me back to staff morale, because staff motivation is particularly important in such a profession—the efficient and effective collection of taxes on behalf of the taxpayer. Inevitably, many of the savings that the Government wish to make will be made through redundancies and restructuring, but the Government approach that package of restructuring and redundancies in the context of an HMRC where staff motivation and industrial relations are already fairly poor.

The figures from the capability review that the Cabinet Office published in 2009 have been quoted, and, as we know, HMRC was the subject of heavy criticism. The review found that only one quarter of HMRC staff, compared with 61% of senior civil servants, were proud to work for the department. Perhaps senior civil servants are not the best comparator for HMRC staff, but 25% satisfaction is not very impressive. The survey also found that only 11% of staff—the hon. Member for Chichester said 12%; I am prepared to meet him halfway and say 11.5%—and 17% of senior civil servants felt that change was well managed in HMRC.

I worry that the combination of low staff morale, which the Government inherited but are contributing to, and further funding cuts might be a perfect storm that leads to more problems at HMRC. After all, if we think about it for a moment, we find that enforcing the payment of tax is not necessarily an easy job. No one likes paying tax, and HMRC staff—disproportionately, I suspect—deal with people who are particularly unhappy about the tax return with which they have been presented.

Staff in my constituency would have been greatly reassured and better able to serve the public if HMRC and the Government had worked together sooner to develop an implementation plan for cost savings, so anything that could be done to reduce the anxiety that they have felt for a reasonably lengthy period would be very welcome. It would reduce the worrying gap between the announcement of cuts and people’s knowledge of where they will fall. Anxiety among staff—particularly given the job that they do—is bound to undermine their effectiveness in serving the taxpayer and the public more widely. Given the importance to our country of effective tax collection, I urge the Government to do everything they can to reduce that anxiety.

My final observation touches on several contributions to the debate. As I have suggested, tax collection is not always an easy or, at times, pleasant job. People do not generally like paying tax, and in a profession such as tax collection, esprit de corps—a sense of public service and duty—is especially important. Previous Governments were not blameless in this respect, but this Government must be careful that, in the quest for short-term savings, they do not further damage the thread of professionalism, duty and pride in the job, without which an efficient tax collection system is unlikely to be possible.

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

The hon. Gentleman is absolutely right about the importance of morale at HMRC. As we discovered from testimony to the Treasury Committee, which Members discussed earlier, HMRC has gone from being a flagship Government department to almost dysfunctional on some metrics. One area in which it is dysfunctional is morale. Does he share my view that the nature of the cuts that have been made over the past decade and the very poorly handled merger with Customs and Excise have been most to blame for the crisis of morale at HMRC and the decline in its reputation?

[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.

[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.

[Jesse Norman]

I have a simple point of information for the House, which is that my constituency is Hereford and South Herefordshire, not Hertfordshire. Although Hertfordshire is undoubtedly a place of great glories—sadly, with due deference to my hon. Friend the Exchequer Secretary, only very slightly secondary to the qualities of my own constituency—the two should certainly not be confused.

[Gregg McClymont]

Now that the hon. Gentleman has provided that important point of information, I will conclude with a final observation that pertains to his previous intervention and that of my hon. Friend the Member for Edmonton (Mr Love).

Only with a cadre of well-paid, trained and skilled staff who enjoy a status commensurate with the important job they do will a more effective, efficient and productive HMRC become possible, and those staff have to be the foundation stone as we go forward through this decade. Does the Minister think we have that cadre as things stand?

--- 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.

[Mr Deputy Speaker (Mr Nigel Evans)]

The wind-ups will begin at 6.40 pm.