Saville Products Ltd and HMRC

Julian Lewis Excerpts

Tuesday 2nd July 2013 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship again, Mr Crausby. I am grateful to have the opportunity to respond to the speech made by my hon. Friend the Member for Altrincham and Sale West (Mr Brady) who, as ever, represented his constituents with great eloquence and made a good case on their behalf.

I should state that in the case raised by my hon. Friend, Her Majesty’s Revenue and Customs—or the Inland Revenue, which was the relevant organisation for much of the time—clearly did not carry out its investigation appropriately and did not complete its review process to the standards expected. I am aware, both from his comments today and from the previous meeting to which he referred, of the distress and worry that his constituents have suffered as a consequence, and I offer my sincere sympathies and apologies for their experiences during that period.

I feel that it would be of most use to address two issues in the course of the debate. First, I shall set out the procedures in place to ensure that all taxpayers, such as my hon. Friend’s constituents, can receive a fair and independent review of any grievance. Secondly, I will address the issues that he has specifically raised involving Mr and Mrs Nelson.

On the first point, I should start by stating that employees of HMRC clearly must understand fully that compliance checks can be stressful to taxpayers. To be fair to HMRC, it sets high standards for professionalism and customer service, and deals with the vast majority of cases fairly and efficiently. With more than 500,000 compliance checks undertaken annually, there are likely to be some cases when claimants feel that those standards have not been met. In such circumstances, it is absolutely right that taxpayers, or their agents, can submit a complaint about the action of HMRC.

HMRC has a well-established two-tier complaints process for such situations and makes a concerted effort to resolve all complaints at the first opportunity. That involves a fully trained and experienced case handler who undertakes a full review of all aspects of the complaint. If the customer remains unhappy following that process, they can ask for the complaint to be looked at again. This second-tier—or tier 2—review is carried out by a different case handler to help to provide an independent perspective on the case. Again, it is worth noting that the vast majority of cases are resolved over the first two tiers. In the tax year 2011-12, HMRC successfully resolved 98% of complaints over the two tiers.

In cases when the taxpayer remains dissatisfied with the response, such as in the case involving Mr and Mrs Nelson, it is right that they can ask the adjudicator or the Parliamentary and Health Service Ombudsman to look into their complaint. The adjudicator is a fair and unbiased referee, and the service provided is free to the taxpayer, provided that the complaint falls within the adjudicator’s remit.

The adjudicator’s role is to investigate and help to resolve complaints from individuals and businesses that remain unhappy about how HMRC, the Valuation Office Agency or the Insolvency Service have handled their affairs, after they have exhausted the relevant organisation’s complaints handling procedure. That can include complaints about mistakes, delays, poor advice, inappropriate staff behaviour or the use of discretion.

As my hon. Friend is aware, a customer can also ask their Member of Parliament to refer the complaint to the Parliamentary and Health Service Ombudsman. The ombudsman is independent of the Government and investigates complaints impartially, specifically on allegations of complicity or malpractice. Investigations by the ombudsman are conducted in private, and the relevant legislation restricts her ability to provide detailed information about specific investigations.

I can confirm that if the ombudsman decides that a Department or an arm’s length body has made a mistake, she will work with it to correct that error. That could involve acknowledging the mistake, issuing an apology and paying compensation. In all cases, it should involve ensuring that the same mistake does not happen again.

That leads me to the second part of my response: my hon. Friend’s interest in the specific case of his constituents. As I mentioned at the outset, it is clear to me, having taken a personal interest in the case, that significant mistakes were made by HMRC and its predecessor organisation. The original investigation was not handled well, and that was further compounded by the failure of HMRC complaints handlers to acknowledge that.

In the case of all complaints that are referred to either the adjudicator or the ombudsman and that are upheld, HMRC undertakes a thorough internal review and, as would be expected, steps are taken to ensure that lessons are learned by not just the individuals involved, but the entire body, in an effort to ensure that mistakes are not repeated elsewhere. One area in which HMRC has learned lessons from such complaints and improved its processes is alternative dispute resolution. It uses the skills of an independent HMRC facilitator to work with customers, agents and caseworkers to try to reach an agreement and resolve disputes.

HMRC has held a successful pilot and is now rolling out that approach more widely, and I hope that that provides some reassurance that action has been taken, following the ombudsman’s report to improve performance in this area. However, I have seen from correspondence that my hon. Friend’s constituents raise concerns about the “agenda” of the ombudsman in failing to uphold entirely the complaint made, and suggest that if I accept the conclusions reached by her, I am condoning “dishonesty, deceit and collusion”. Although I have every sympathy with my hon. Friend’s constituents, and I understand the frustrations that they have experienced, I strongly contest that suggestion. There can be no doubt about the independence of the ombudsman from HMRC—or indeed any Government Department—and I therefore believe her judgment in this matter to be sound.

My hon. Friend’s constituents have been critical of the level of payment awarded, as it is significantly below the amount they believe would represent sufficient recompense for the expense incurred and anxiety caused by the compliance check. Compensation has, however, been paid for the identifiable and evidenced expense incurred as a result of the extended investigation and, additionally, a compensation payment has been made for the unnecessary suffering caused by HMRC’s handling of the matter, in accordance with the instructions of the ombudsman. As my hon. Friend rightly points out, the payment is much higher than is normally the case in such circumstances. However, the ombudsman did not find sufficient evidence of economic loss and accordingly did not direct HMRC to pay any compensation in that regard.

I reiterate my apologies and sympathies to my hon. Friend’s constituents for the undoubted worry and distress caused to them as a result of failings at HMRC or the Inland Revenue, as it was for much of that time. It is always regrettable when avoidable errors such as those made during this investigation result in the kind of personal hardship that no amount of financial compensation can eradicate.

[Dr Julian Lewis (New Forest East) (Con)]

I have been listening to this debate with great interest and I must say that Mr and Mrs Nelson have inherited the fighting spirit of the great admiral who shared their surname. I have a similar case in which HMRC is pursuing a medium-sized firm for about £1 million in notional lost tax for goods that were bound for export but were stolen. The firm was an innocent party and the tax is notional, but HMRC is threatening the livelihoods of 40 employees and will not let the matter go. When the Minister says that such cases are always unfortunate and that we should put up our hands and say sorry, will he take a sympathetic view and have a word with the organisation to say that sometimes it is better to prevent the wrong from taking place in the first place, rather than having to apologise for it afterwards?

[Mr Gauke]

I am grateful for my hon. Friend’s intervention. It is not possible for me to comment on individual cases, although I know that he has taken a close interest in that matter for some time. Perhaps we can have a quiet word about it afterwards. It is not possible for me, as a Minister, to intervene in operational matters, but it is right that HMRC has the correct procedures in place.

To return to the case raised by my hon. Friend the Member for Altrincham and Sale West, it is perhaps worth reflecting on the fact that it originated in 2001. The UK’s tax authority has undergone radical changes since then, not least with the formation of HMRC itself. While that does not in any way excuse the errors that were made, the organisation has made significant improvements in the past 12 years. Furthermore, let me reaffirm my faith in the work of the parliamentary ombudsman—in the context of HMRC and beyond. I have trust in her impartiality and independence. Although I appreciate that this is not the answer that my hon. Friend is looking for, and I have no doubt that he will continue to represent the case of Mr and Mrs Nelson strongly, the ombudsman has reached her conclusion and it should be respected.