HM Revenue and Customs

Debate between Jesse Norman and Guto Bebb

Wednesday 2nd March 2011 Commons Chamber

[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.