Oral evidence: HMRC Business Plan 2014-16, HC 493.Tuesday 8 July 2014

Oral evidence, 8 July 2014.

Witnesses

Lin Homer, Chief Executive, HM Revenue and Customs, Ruth Owen, Director General Personal Tax, HM Revenue and Customs, and Jim Harra, Director General Business Tax, HM Revenue and Customs, gave evidence.

Chair

Good morning. Thank you very much, all three of you, for coming to give evidence to us this morning. Doing the HMRC job is never the easiest. Tax collectors are never popular, but someone has to get the money in and obviously Parliament wants to know whether you are getting it in as efficiently and fairly as you can. That is what we are going to be exploring today. Can I start with this story that was in the press last week about the annual reporting accounts? The NAO found that when HMRC agreed performance targets with the Treasury for the spending review period it set the baseline too low, and this made the targets easier to achieve and resulted in an over-reporting of performance of HMRC. Why has it taken so long to spot that error?

Lin Homer

As you say, I laid my annual report before Parliament last week and in it I have made clear that, when NAO undertook the audit, we and they did find this error of calculation in the baseline. I think the reason we have not found it before is that the estimated baseline was a point from which to negotiate the stretch to ask of HMRC in return for the £1 billion investment the Government made in us in SR10. Since then we and NAO have been measuring what we have done year on year, rather than returning to that base point. The point I want to make first of all is obviously that I am very sorry that that error occurred, and the reason for making it clear in my annual report is to account for that to Parliament and to apologise, but what I want to emphasise is that the achievement our staff has made over those years has been what the Government asked of it, indeed slightly more. To their credit, when the target was reached, which we now realise was a bit softer than we realised when it was negotiated with HMT, they did not stop. They kept going, and that is the reason that no money has been lost to the country, because tax inspectors being of the nature that they are, they did not down tools at the target. They performed and got as much as they could in. Essentially we hit the target, but our measurement of it was wrong and we thought we had overachieved when what we had actually done was achieved what was asked of us. I have tried to make that very clear in my report.

Chair

Does the responsibility for that really lie with the Treasury or with HMRC?

Lin Homer

No, I must accept it as Chief Executive, because we were negotiating a baseline with Treasury colleagues. One might have hoped that between us all we would have spotted it at the time, but I think what we were doing was aggregating information—

Chair

But you put the glitch in the system, which they did not spot.

Lin Homer

Well, we aggregated badly. Some of you who have been on the Committee a number of years will know that HMRC has tended to be a somewhat siloed business in the past. I think it still is to a degree, although we are trying to be better. In trying to add up the historic performance in order to agree a stretch, we did not get all the constituent parts in the right buckets.

Chair

Did HMRC receive any additional funding as a consequence?

Lin Homer

We received £1 billion of investment in return for which we were asked to meet some targets, and we met those targets. No, we did not receive anything for the error. You might say HMT thought they had got even more for their money, but they got—

Chair

That is what I am just checking.

Lin Homer

No, they got exactly what they asked for in years one and two and they got about £2 billion more than they asked for in year three. We are now ahead of target, but in those first two years we were not.

Chair

But not as a consequence of the error?

Lin Homer

No. Once you re-baseline, those are our achievements.

Chair

Were any staff bonuses linked to the target?

Lin Homer

Yes. We do give staff bonuses and given that, as I have just said, we have seen a 44% increase in compliance activity in the last three to four years, yes, I think a number of bonuses are related to that improvement in performance, but none were related to overachievement. It is the core task of meeting the target that will have led people to be recognised.

Chair

Can I turn to taxpayer confidentiality? What is the case for taxpayer confidentiality? Why are you fighting this so vigorously?

Lin Homer

The first point I would like to make is that we act as commissioners under the statutory provisions given to us, and that requires us to have very high regard to taxpayer confidentiality and not to reveal details about individual taxpayers unless there is a legislative opportunity to do so. I think the practical reason for it is that we are encouraging people to be open with us about their tax affairs, to give us the information we ask for and indeed to take our encouragement and our advice to keep their affairs in order. What we do not want to do is risk people feeling that they will be subject to wider commentary from people on issues that relate to the conversations they have had with us.

Chair

Do you think it would be easier or more difficult to get the tax in if there was some relaxation of confidentiality?

Lin Homer

I think it would be more difficult. What I would want to say, however, is I think we have been considering very carefully the appropriateness of being transparent about issues when they are subject to court proceedings and we do publish information, for instance, about tax avoidance schemes. When we think it will help get the tax in we put general information about what we know about the system into the public domain, but in the main—

Chair

That is not in breach of the obligations on you?

Lin Homer

Not at all. In the main, our view is people need to believe that, if they disclose to us and they work with us, that is a relationship with us, not with the general public.

Chair

Just to be clear, it is your judgment that if this was relaxed you would end up getting in less tax because your job would be made more difficult. Is that correct or not?

Lin Homer

Yes. As Commissioners, we take the view that it is important that people have trust and confidence in the system. We think general information about what we do should be as widely shared as we can, because that maintains confidence, but for it to become a question of more general publication would not be helpful in persuading people to be open and honest with us as they go along.

Chair

We have both made the case on expediency in the exchanges, but I am looking to see what your view is on expediency grounds. Does HMRC feel under any moral obligation to keep people’s tax affairs private?

Lin Homer

I have not personally considered it from a moral position, because my background as a lawyer has me start with the statutory base and move on to the practical base—

Chair

Lawyers do not do morality.

Lin Homer

Yes, I was trying to avoid saying that. I do not think it is for us, as civil servants, to opine on the morals of the issue, but I think there are good practical reasons for us to operate as we operate. I want to emphasise that I do think there are good practical reasons to share more information about our system, and we have done a lot more discussion about how we go about our business. We are more prepared to share information about high-risk promoters, deliberate defaulters or people where we win cases, because that just helps reinforce people’s confidence that we do bring people to book if they try to cheat the system.

Chair

It certainly needs a lot of careful thought.

Lin Homer

Yes.

Chair

My instincts lead one to think, “Well, what could be done with large companies, and could more be done there?” It seems that what you are saying is that, even there, this might affect the yield and it might also discourage companies from coming here.

Lin Homer

Jim is in charge of large business. I do not know whether it would worth hearing from him how we operate with large businesses and how we seek to influence them.

Chair

Just a brief word on that—unless you feel we are just going to hear a bit more of the same point you have already made. Do you have a new point to make, Mr Harra?

Jim Harra

First of all, we do welcome large businesses being transparent about the tax policies they follow and, in our engagement with them, we encourage them both to take a low-risk approach but also to think about how they manage their reputation and what they disclose. I would also say that the confidentiality of large businesses’ tax affairs sometimes makes it difficult for HMRC to get across the story of what we do with large businesses, because we have to talk in generalities all the time, but I think it does permit them to be very disclosive to us of information that is often commercially sensitive and often given to us in real time as things develop. I think that is important to having a relationship with them that encourages compliance.

Steve Baker

Do you think there is enough understanding—or to what extent is there the right understanding—among the public about the difference between tax evasion, tax avoidance and tax planning?

Lin Homer

I will ask Jim to comment on that. Just as an opening comment, I do not think there is a deep understanding and, if I am honest, even when we have some discussions with Parliament I think we struggle to get an understanding of the difference. Put very simply, tax evasion is activity that is being in some way fraudulent and can lead to criminal proceedings. Tax avoidance is people who are boundary-pushing or seeing where the law lies. We have very different approaches to being able to tackle those, including powers to act. I think it is an area where it would be useful for people to understand more. Again, we are trying, by general information, to be more informative in this area.

Jim Harra

Yes, and I think we do have an obligation to help the public understand what the behaviours are that we see in taxpayers. It is, quite rightly, a matter for public and political debate about what is acceptable tax planning and what is not. I think there is sometimes a perception in the tax profession that that is a matter for the tax profession and not for others. That is not something I would agree with. They are terms of art in some ways. They are not scientific terms. Of course, one of the uncertainties that has been created for large businesses and for the tax profession generally is that the public view of what is acceptable in tax planning has been changing in recent years. That creates a bit of uncertainty, and a lot of people in that profession and in large business want to stay on the right side of public opinion but are constantly trying to gauge where it is.

Steve Baker

Can I just pick up on this point and move us on to the principles of tax policy and, in particular, certainty? This Committee gave a report on the principles of tax policy, and it gave six overarching principles. In your view, how much progress has the Government made against those principles over the last three years and, from my point of view, particularly in relation to certainty?

Jim Harra

Again, my specialist area is large business. We are well aware that taxpayers value certainty and, in fact, our experience with large businesses is that they often value certainty over having a lower rate of tax—certainly internally for themselves; if you are a tax manager in a multinational you want to be able to be confident in what you tell your board about what is going to happen to you—but also certainty that they are getting the same treatment as their competitors. It is seen as one of the strengths of the UK tax system and UK tax administration that they can have those. In large business taxation there is a lot of planning of compliance involved and there are a lot of options and choices and a lot of complexity. One of the ways that we give certainty is through working in real time with large businesses so that, as they are planning their transactions, long before they have to file their tax returns, they are able to engage with us and understand our view of the law and how it applies to what they are doing.

Steve Baker

May I just pause there? I want to pick up on that point. Patrick Stevens of the Chartered Institute of Taxation expressed this concern about the increase in the extent to which people are, and he put it this way, “taxed by legislation, untaxed by guidance”. That is, widely drawn legislation is then refined by your guidance. Do you accept that this is becoming more common, and what are its implications in terms of the discretion that HMRC is applying to the law?

Jim Harra

I am not sure I do agree it is becoming more common and, in fact, in the last few years we have been working through our published extra-statutory concessions and identifying those that can be put on to a legislative footing or that are no longer relevant and can be discontinued. It is the case, however, that tax law has to apply to a vast range of different circumstances and it is impossible to legislate in precise terms for each one of them. It is necessary sometimes in legislation to have concepts that you then have to elaborate on in guidance so that people are clear about how they will apply to different situations.

Steve Baker

Just particularly on this point of discretion—perhaps Lin Homer, you would like to reply—one of the principles of the rule of law is surely that the authorities do not have discretion when it comes to determining how people’s conduct will be judged. But from what Mr Harra has just said, it seems that HMRC implicitly requires discretion in order to apply a general set of laws to particular circumstances. Is that a fair comment or do you think you do not apply discretion?

Lin Homer

We would share your concern that we would not want to be managing a system that was based on discretion, not least to ensure consistency in a system as big as ours, but I think, by its nature, there are complexities in our system that require judgment. Over the last few years we have taken a number of steps to try to ensure that we can distinguish between judgments based on our often tribunal-supported view of the law and the views of others. In creating the role of tax assurance commissioner, which I did on my arrival, and having someone without line responsibility for tax decisions but assuring our system, I think we feel we have been able to take more confidence that we are applying the law consistently and well. Part of the reason we will take decisions to a tribunal would be if we look into our legislative base and see some uncertainty. Although we are very proud of the fact that we win most of our tribunal cases, it is just as important in some ways to take cases that we do not win to get that certainty. We will seek to return to a parliamentary-led tribunal-supported view of what we do, but there is complexity in our system and I have yet to see a tax system that does not have a fair amount of complexity in it.

Steve Baker

On this point of complexity, some of my constituents, as legitimate investors who want to promptly pay the right amount of tax—I am quite convinced they do want to promptly pay the right amount of tax—took advantage of incentives to invest in film production and funded some blockbusters. They made losses in the first year. They were given reliefs on those losses and then, subsequently, HMRC wished to recover the money that had been allowed as a relief. Now, they feel they have been treated unjustly because they believed that this scheme had somehow been cleared with HMRC. The first thing is, I understand that HMRC does not clear schemes and approve them. Is that the case?

Lin Homer

Yes.

Steve Baker

Could it be the case that an HMRC official might inadvertently have given the impression that they had approved the scheme that had been explained to them?

Lin Homer

I think that unlikely. I am sure we will talk more about our proposals around accelerated payments but, just to be very clear, I think over many years Governments have introduced reliefs with clear intended consequences. It is the nature of taxation that, despite the clarity of purpose, if schemes look capable of being used more widely, they are. The original film relief scheme proved to be susceptible to significant avoidance activity; not a small amount, but significant avoidance activity. There were a series of changes made to alter that, finalising in a second film scheme that is now running, and I want to emphasise that it is running with no avoidance that we can see in it at all. The purpose of Parliament took a while to land in this case. My observance of this, and I have looked at a number of these cases quite clearly, is that HMRC was very clear from very early on about whether these schemes would work—we thought it was unlikely, and that we were going to challenge them. We have had a lot of conversations with investors in these schemes, and I would be surprised if any investor still felt that they were in a scheme that had any kind of blessing from HMRC that is now subject to our challenge.

Steve Baker

I will come to the point, because I think the Chairman wants to move on. I have three quite quick questions. Will you take those sorts of schemes and move them quickly to tribunal for the benefit of those investors who want to get closure, who want to pay the right amount of tax and then move on?

Lin Homer

We have been trying, and indeed we have had a disclosure offer running for those people for a long time. There has been an opportunity to settle. A number of people entered into these schemes and signed up to a deal to pay a fighting fund, which suggests to me they knew that this was going to be contentious, and a number also signed a deal preventing them from reaching a settlement with us. We would urge all promoters to let their investors off those obligations.

Steve Baker

There seems to me to be a cycle here between Government or Parliament incentivising particular behaviour through tax breaks, then things getting out of hand and HMRC having to take particular actions to close down what then becomes abuse. That brings me back to where I began. Do you think all of this feeds into the issues of discretion and the difference between avoidance, evasion and planning, and could it be possible that we could solve many of these problems by simplifying the tax code?

Lin Homer

The Government has set up the OTS to have a look at simplification, and I think, as the tax administration, we would always argue that simplifying where we can would be a good thing to do. The Government of the day always wants to use some forms of relief to achieve some quite proper aims as a Government, and I think we are able to help them design good policies, but I do not think you can entirely remove the tendency for some promoters to seek to utilise and extend what is intended in a way that was not intended. I would simply encourage people to look at the schemes and to look at the success rates of the promoters, because that will sometimes give a clue as to how likely the scheme is. I know when we have appeared in front of the PAC, the Committee has also had some promoters in front of them, a number of whom had to admit that none of their schemes had worked. I think there is some responsibility on the investor to think about what they are doing, as well as on us to be as clear as we can.

Steve Baker

What would you say to people who wish to use those tax breaks but also end up with certainty about the tax they are going to pay? How can they get involved in those schemes without being trapped in these avoidance measures?

Lin Homer

Just to repeat what I said, the new film scheme is, as we can see, subject to no abuse whatsoever. It is great to see people support British film. I think they can do so safely with the new film scheme without concerns. On wider schemes, I think it is well worth asking questions, and I certainly think it should ring alarm bells if you are required to take out a fighting fund insurance scheme and you are required in advance to agree not to settle with HMRC. I would suggest that might lead you to think about where you are taking your advice from.

Chair

In HMRC’s slightly more depressing moments, when the commissioners gather do they sit around and try to draw up on the back of an envelope a tax system that they think they could collect more easily and that would subject them to less public criticism—probably a simpler system? If so, how many staff do you have working on simplification?

Lin Homer

We have about 17,000 tax experts in HMRC.

Chair

That is not at all the question, though.

Lin Homer

No, but they think all the time about how we can improve the system. Given the frequency of fiscal events, we discuss changes to the tax law regularly with the Government of the day. I think we are realistic about simplification. One of the things we have been talking with the OTS about is the degree to which there are legislative chances to simplify, and there are. There is always pressure on legislative time and there needs to be an appetite to do that, but we do also think, in developing our new ways of serving including more digital offerings, that some of the complexity of our system can sit further back and be simplified for the user. I know John Whiting is interested in this as well.

Chair

Those were not answering my question.

Lin Homer

No, we do not sit about being depressed.

Chair

You have skilfully avoided the policy question—

Lin Homer

We do not sit about being depressed.

Chair

—and you have answered it by saying, “Well, we can solve some of these problems with IT so people do not notice the complexity. What I am asking is, does HMRC, as a group of people, think through and quietly make proposals at the policy level?

Lin Homer

Yes, we do.

Chair

What kind of response are you getting from those you put these to?

Lin Homer

I think we get a good hearing. We have a policy partnership—

Chair

There is not much that has happened, though, is there?

Jim Harra

First of all, every—

Chair

Sorry; just to illustrate that, would you say the tax system is about the same, simpler or more complex than it was, shall we say, five years ago?

Lin Homer

I certainly have not seen it get massively simpler since I arrived two and a half years ago.

Chair

Or 10 years ago or 15?

Lin Homer

I think, by its nature, it remains pretty complex, but I think we do have ways of making clear to people what they have to do and getting a greater understanding. I personally think we are making progress in providing the right kind of support, particularly to small businesses to help them understand the system they are in. I would push back a little bit about the importance of us educating and using our systems, and the policy partnership gets us into the right conversations. Most Parliaments are interested in doing new things rather than returning to simplification. I think the creation of the OTS is a big start and a number of things have been taken off the statute books since their arrival, probably matched if not exceeded by—

Chair

There is always a tension between various tax changes and maximising the yield—

Lin Homer

Absolutely.

Chair

—both of which are big objectives of politicians.

Mark Garnier

A quick rejoinder on confidentiality, if I may. I refer back to the Public Accounts Committee of 14 December 2011—before your time—when they made a comment saying, “The Department was not able to point to an absolute statutory bar on disclosure of information about specific cases. Its withholding of information is in fact a policy decision taken by Commissioners.” It then goes on about how it makes life difficult for the select committees. You are a lawyer. You raised the point. That obviously was your predecessor who was involved in that. What would you say to that comment, that the department was not able to put an absolute statutory bar?

Lin Homer

I have had similar conversations with the PAC on a number of occasions when I have attended and indeed did discuss the clauses of the Revenue and Customs Act with them. It is clear on the face of the Act that we are required to have a gateway or a purpose[1] before we reveal confidential information, and I think it is right and proper that we are very careful about that. It is an area that we will always look at, and there are circumstances when confidentiality is set to one side, for instance when we prosecute, and indeed when matters are before tribunals confidentiality is set to one side, but it is clear to me that we, as commissioners, must take a decision and that decision must be within the confines of the statute. The point I have made quite simply to the Committee and would make to you as a Committee of Parliament is that if Parliament wants to change, it would be open to them to do so. I do not believe it is open to us as commissioners to just change our statutory base.

Mark Garnier

I have had a very brief look at the Act. I think you put it on your site. Section 18 of the Act says you “must not give or disclose HMRC information to anyone, including other government departments and their agencies, local authorities, the police or any other public bodies, unless you have lawful authority to do so,” and that lawful authority then goes through as you say. Do you think you are being put under moral pressure or false pressure to go against the wording of this Act and indeed the spirit of this Act?

Lin Homer

No. Well, certainly not irresistible pressure.

Mark Garnier

That is a slightly different thing. You are right to resist pressure, but do you think the pressure you are being put under is fair?

Lin Homer

I think there is an understandable interest in these issues among the general public, and the position I have taken since my arrival is to try to shift the level of information we put out generally about what we do. I think, as commissioners, we do owe a duty to the general public to talk about what we do. We have done some very good work with Jim’s team in using general examples to talk about the work we do, because I think people do want, understandably, to feel—

Mark Garnier

These are where the information about specific individuals or specific corporations is redacted, and—

Lin Homer

We have been clear that we feel able to resist that pressure wherever it comes from, and we think we are right to do that. What is important is that people have to have trust in the taxation system but we do not think that comes, if I am honest, from hype about an individual case. One of the things we have tried to be very clear about is that we are confident that we are applying the law to all types of business in the way that Parliament has asked us to.

Mark Garnier

That presumably covers individuals. I want to be clear on this. It may be populist to beat up Google or Starbucks, but presumably the same law that protects their confidentiality is the same one that protects, for example, maybe a charity or indeed a private individual.

Lin Homer

Absolutely.

Mark Garnier

Should one private individual have more or less right to the law than another? For example, should an unpopular individual have less right to this law than perhaps a private individual living in a nice middle-class estate?

Lin Homer

I think our duty is to apply the law to everyone, as we are asked to do, and, as we said earlier, we also do not think it is beneficial for people to think that the discussions with us will lead to discussion about their individual case. What I think we need to do is reassure people that we are not being tougher on one part of business than another or one sort of business than other. In that respect, I think general information about what we do is a duty that should be put on us, but we draw the line there and I think we have drawn the line clearly and cleanly. There will be occasions when, as I said earlier, we will want to share more general information, and we have tried to be more explicit, for instance, about avoidance schemes because we do think we owe an information opportunity to say to people, “You can find out about litigation we are taking about an avoidance scheme here”. It does not abrogate the need for individuals to think for themselves about what they do, but we think it would be useful for people to be able to find information out about some of the decisions they are making.

Mark Garnier

You would not be able to take a hypothetical avoidance scheme and say, “This is something we should feel very worried about and these people are involved in it, so they could do it in a public place”, would you? You would have to be very discreet.

Lin Homer

We will take individual avoidance schemes and say that we are—

Mark Garnier

You would tell them directly, but you would not—

Lin Homer

We will say, “We do not believe this scheme works. We are litigating against it. If you are a member of this scheme, be aware. Our view is that this does not work”. We will write individually to members of that scheme; indeed I think we are due to very soon. We will try to give very direct information to people about our views about schemes. We will publicise evasion scams and say, “We are going after people like this”, because we think all of that, first, generally enhances people’s confidence that the system is fair and, secondly, as far as cheats are concerned, makes them recognise and understand that there is a very serious risk in cheating the system. That is our general duty, and we think that is different to putting out specific information about individuals or businesses that allows others perhaps to draw ill-informed views about what they are doing or not doing.

Mark Garnier

Just a quick summary to be very clear. The law as it stands is absolutely clear on confidentiality and applies to the most humble of private individuals and to the biggest of multinational corporations, but on top of that there is a practical element to this, which is that if you are going to engage properly with the wider taxpaying community they will engage in return with you on the basis that everything they say is confidential, and that enhances your relationship and your ability to collect taxes. Is that correct?

Lin Homer

That is our view, yes.

Mark Garnier

Brilliant. Thank you very much.

Chair

Just quickly on that point, of course we have a duty to look to see whether you are collecting it constantly or not, and if everything is confidential it is more difficult to scrutinise.

Lin Homer

Yes.

Chair

What should we do when we need to poke about in that area?

Lin Homer

One of the things we have done is put in place the role of tax assurance commissioner, Edward Troup. His role is to undertake assurance throughout the year that, largely, the schemes run by Jenny Granger and Jim Harra are running in accordance with our rules. He subjects their major cases to scrutiny, but then he produces an annual report, which I think you have with you. He produces the tax assurance commissioner’s report, which sets out, in general, the number of cases and some of the background of the cases. I am not sure Edward will bless me for saying this, but it would be perfectly in order for your Committee to have Edward in front of you and talk about that.

Chair

Edward is a good man. I happen to know him. We used to work together many years ago, but what happens when Edward goes native? Are we not going to have specific cases from time to time, and do we not need some procedure for bringing someone in to give us confidence that that process is being done to a high standard?

Lin Homer

No, I do not think so. The change that we have made is a complete role separation. Edward does not have any responsibilities or any right to be involved in day-to-day tax decisions relating to cases, and we have been very clear about that. He does not have any of the conversations with businesses or companies. He is not subject to any individual discussion with them. He remains separate from the role that Jenny and Jim play and able to challenge and critique their work without any duplication of obligation. I believe that is a role that has to be fulfilled by a tax expert. That is what Edward is and a successor would need to be. I have not considered the view about whether, like non-executives, there is a risk that if he stays too long he will go native.

Chair

After all, he was once a poacher and, therefore, he probably started with the right ideas when he was at Simmons & Simmons. I think it was Simmons & Simmons.

Lin Homer

I think it was.

Chair

He has now been a gamekeeper a very long time.

Lin Homer

But, as Second Permanent Secretary, he is accountable for that role to you and, as I say, I think it would be reasonable, just in the same way that you can test whether I am delivering what you expect of me, that he is held to account.

Chair

When we extend the invitation I am sure he will send you a thank you card.

Lin Homer

I am sure he will.

Jesse Norman

On the question raised by Mr Garnier, I wonder whether it might be an idea or whether HMRC has looked at publishing a league table of advisers showing the number of their schemes that have been found unsuccessful. That would be a rather helpful way of making public people who are sailing close to the wind and people who are not and, therefore, assisting investors of the kind that Mr Baker raised with the concerns they have.

Lin Homer

We do publicise very clearly now the schemes that we are concerned about. It is not very difficult to see where the wins are occurring. We have proposals around what we call high-risk promoters. I wonder whether Jim might outline those to you, because those are not—

Jesse Norman

I do not have any time, so I do not want an outline, but what I would very much like you to do is to think about it and perhaps write to us with a proposal or entertain that idea of a league table, because people who are in the position described by my colleagues do not have the time to search around through your publications as to which advisers—

Lin Homer

No, but perhaps one point—

Jesse Norman

They want to know who are the dodgy ones and who are not, and that is a very useful, objective, already-existing public metric that you could easily gather together and publish.

Lin Homer

We will write to you on that, but if I could just make one point about high-risk promoters, the proposition will require them to tell their investors that they are high-risk promoters. It is an obligation placed on them to—

Jesse Norman

It will not help a new investor.

Lin Homer

No, it will help the new investor, because the promoter will have say, “I have to tell you I am a high-risk promoter”. That is a declaration they are required to make.

Jesse Norman

Once they are already in a conversation with a potential investor. Okay, thank you. I have some general questions about administration, but I want to talk first about the situation with Hereford United. I flagged to you a very serious concern to me, to my constituents, to fans and to supporters of the club. Obviously proceedings with regard to tax owed are sub judice, so I cannot talk about that in any detail, but I just want to ask a couple of general questions that bear on it. The first question is this. Do you monitor, scan and scrutinise information from Companies House on changes of directors, the merry-go-round of directors that sometimes occurs in the context of a company that is potentially failing? Do you scrutinise that information to flag up potential warning signs in companies that may be in arrears with you?

Lin Homer

We do work with Companies House and, indeed, are trying to work more closely with them. We do seek to identify, early, directors with a previous history involving failure to properly administer a company or to pay tax. There are some limitations about what we can do and what we cannot do, and it is an area that we regularly discuss not only with Companies House but with BIS, because we do believe there are problems for us and other parts of Government around what are sometimes called phoenix companies where directors move. It is an issue that we spend some time thinking about.

Jesse Norman

You could make those links tighter and that scrutiny closer. Can I ask you to do that or look at it?

Lin Homer

I think we are doing what we can. There are some limitations within law about your ability to stop people doing things in the future because of what they have done in the past, but where we can we do and I am very happy to assure you that we will continue to do so.

Jesse Norman

Where a promoter or someone in a similar position from one of these companies that may be in arrears with you has a criminal record, do you log that and note it, and does it feature in your proceedings?

Lin Homer

Can I give that one to you, Jim?

Jim Harra

Yes. I am not 100% sure about that point. It is the case that if it is a large business, or if it is a smaller business going through a critical life event from our point of view, such as being in serious arrears, we do keep a close eye on who is controlling the business and what their track record is. I cannot say that we access criminal records checks, for example, but certainly, for cases that are in serious arrears, they are being managed case by case.

Jesse Norman

Or cases that have a high public profile, even if they are not large.

Jim Harra

Yes, certainly large businesses—

Jesse Norman

Even if they are not large, though, ones that are matters of significant public concern; could you look at extending that?

Lin Homer

We will definitely get involved at times such as voluntary administrations where one of the issues might be which directors are going to take forward the proposal. We will often sit in those conversations, you will understand, as a creditor, and we, I know from a recent case, will include requirements for changes of directors.

Jesse Norman

Do you track and monitor the use and abuse of company voluntary arrangements, and are you happy that the current process is a bullet-proof one?

Lin Homer

We will object to those approaches where we do not think they are likely to lead to a satisfactory outcome for us or for the business.

Jesse Norman

Or may be fraudulent in some way or potentially—

Lin Homer

We would always share information about fraudulent activity with the relevant body. As a law enforcer ourselves, we would not fail to take action. We are not predominantly the organisation that regulates businesses and directors but, as I say, we have an existing strong relationship with Companies House. We are currently under quite a lot of discussion about ways in which we can support each other. I think there is an ongoing expectation that Parliament should have on us to work well together.

Jesse Norman

I am grateful for that, thank you. I would like to request that the procedures that Mr Harra described with large companies also be extended to those that are matters of significant public interest, even if they are not large. I have a couple of questions about the administration of HMRC at the moment. In 2013 to 2014 only 79% of call attempts to your contact centres were handled. Do you think you acted too hastily in closing your inquiry centres before you improved your performance in answering calls?

Lin Homer

Can I pass this one to Ruth?

Jesse Norman

Yes.

Lin Homer

Ruth is the DG who is responsible for personal tax.

Ruth Owen

We are on a trajectory to continuously improve our call handling. You will know that year on year we have become better, from a low point of 48% several years ago through to 79%, and our aim this year is to deliver a consistent level of service of at least 80%. We are doing that and, of course, we changed our numbers from 0845 to 03 numbers to make that cheaper for our customers. Most customers prefer to deal with us by phone and, of course, increasingly, online.

Jesse Norman

You have not answered my question, which is—

Ruth Owen

I will come to that directly. Just setting out our overall customer offer, most people want to phone us. Increasingly, people want to use online services. You will know that over the last few years the use of our inquiry centres has reduced significantly so that some inquiry centres were only getting a handful of visits per day and most of those did not need appointments. They were coming in to arrange an online appointment or to use our phones. What we have done in our year-long pilot of trialling closing the inquiry centres, before we did that just last month, was to look at what service we needed to offer to our customers face to face, which is the essence of inquiry centres—our high street presence.

Jesse Norman

I am sorry, I am struggling with this. You closed the inquiry centre, or at least you took 90% of the employees out of the inquiry centre, in Hereford, at the tax office, in 2008-09, I would guess, and the result was a significant loss of employment and, as far as anyone could work out, a significant loss of quality of service. I am asking you the question: did you act too hastily in closing these inquiry centres before you had improved your performance? It is a yes or a no, and I think it is pretty clear you did, because you had not hit your own target. In fact you were way off the target when you began the process of closing the inquiry centres.

Chair

No, let us see what the—

Jesse Norman

I just want to know what the answer is, that is all. I understand the sales pitch. I just want to know what the answer is.

Ruth Owen

I do not think we did. What you are describing is a several-year pattern of closing inquiry centres where there was a very low volume of traffic going into those inquiry centres. That culminated in the decision to close all inquiry centres, which we took this year, which culminated in all inquiry centres closing this year. We do think there is a difference between the people who are using our phone service compared to the people who need our face-to-face service, which we are maintaining outside of inquiry centres. We have now a mobile service in 359 venues across the country, which is more than the 281 inquiry centres that we closed last year. We are trying to serve horses for courses, a dedicated face-to-face service for people who need that and a better and increasingly better phone service.

Jesse Norman

What measures have you taken to assess whether or not these closures have added to the burden on voluntary advice groups? What measures have you taken?

Ruth Owen

As part of our decision to look at the future of inquiry centres, we did an open public consultation last year. All voluntary sector organisations were welcome to consult with us on that. All the big ones did and we took private consultations with them—Citizens Advice, Gingerbread and organisations like that—and very much have worked in partnership with them. The model that we have now in place for our most vulnerable customers is hand in glove with voluntary sector organisations who are now—

Jesse Norman

Had their burden gone up or not?

Ruth Owen

I beg your pardon?

Jesse Norman

Was the feedback that their burden had gone up with the withdrawal of these inquiry centres?

Ruth Owen

Not significantly, no.

Lin Homer

Indeed, I think our view from the majority of those bodies is that they believe the approach Ruth is now taking will give better service to the most vulnerable. What we have done is provide some extra funding to them for them to act as signposters to the new service. Admittedly they will watch us carefully to make sure we deliver. I do not want to pretend otherwise, but if we make this change well they think it will undoubtedly improve service for the people that they also care about.

Chair

Before we move off that, do you have survey data to support the assertion you have made that these advice centres support the change?

Lin Homer

We do not have survey data but we have endorsements from them.

Chair

It is anecdotal?

Lin Homer

No, it is their view.

Ruth Owen

We published the response to our consultation, so it is certainly in there.

Lin Homer

It is their published response to our consultation. It is their view. We do not—

Jesse Norman

Speaking about the CAB or someone like that, you write them a cheque now and they have said, “We like the new arrangement”?

Lin Homer

I think that could be taken the wrong way, as suggesting you can buy the CAB. That is not my experience.

Jesse Norman

No, I was just wondering if those two things happen. It sounds like they do not happen.

Lin Homer

No, it is the other way round. They lobbied us very hard to say, “The service you are providing to vulnerable customers is not good enough”. They worked with us throughout to provide a service that would meet needs better. They have been very openly opinionated about the shape of that and very well listened to by us, and they believe the shape of the service we are delivering will be better for vulnerable customers. We are reliant on them supporting the service, and our view is that it is sensible to spend some money reinforcing their activity to make sure that the people who need the service find it. We think it is an investment in service, partly in our own and partly in the voluntary sector. We have literally only just started it, and I am sure when we see you next year you will rightly ask us whether it has delivered, but—

Jesse Norman

You are continuing to monitor it?

Lin Homer

Absolutely, and we will.

Jesse Norman

I suspect the experience you have described varies with that of every Member of Parliament. I would suspect that every Member of Parliament has found that small businesses and individual constituents of theirs have had their burden significantly enhanced if there is any complexity in their affairs at all, so in a way that has not necessarily been addressed.

Lin Homer

We would obviously want that feedback. I would have said no to your question. We are clear that when we are doing our best to serve our customers it is important that we do that in an effective way, and inquiry centres are significantly more expensive than good quality telephony. By closing the inquiry centres we have money to invest in telephony.

Mr Mudie

I find it totally unacceptable, the complacency and smugness on this issue. Every year you have come before us. The national level was 93% or something. You have had this excuse or that excuse. You are not answering one in five calls. Now, that is atrocious. If you cannot run a call centre, how can you run Inland Revenue? I had experience yesterday of trying to get a decision-maker in an organisation on a sensitive matter and all I could get was a poor young lass on a call centre who had no authority to put me through and who had no knowledge of what I was talking about, and you wonder, “How on earth can I get into this firm?” This is very serious, and that is how people deal with you. For 21% of your calls you do not pick up the phone. That is old people, poor people, worried people, who are trying to get through, and every year you come here and you dismiss it, “Oh, we are improving”. When the hell are you going to get to the 93% industry standard? If you do not get to it, give us a period to give yourself time to get to that; but if you do not, put some resignations on the table. As Alex Ferguson said, it is no use trying. Trying is not a word. Either do it or go. That is quite straightforward. You are handling a tremendous amount of people.

Lin Homer

Mr Mudie, I do not accept what you say. We are not complacent.

Mr Mudie

Which part don’t you accept?

Lin Homer

I do not accept that we are complacent.

Chair

Let her respond.

Lin Homer

I do not accept that we are complacent.

Mr Mudie

Which part don’t you accept?

Lin Homer

Well, if you let me answer—

Mr Mudie

I want her to be specific.

Chair

Hang on. Let Lin Homer reply.

Lin Homer

If you let me answer the question, Ruth Owen has been with the service about a year and a half. We have made significant progress in that time. She has ensured progression against our call handling and our post handling. Just to take the comparison with the call centre you called, she has introduced a system that we call our “once and done” system. That means many more of our staff, when somebody calls up, can take and finish the call and can give a full resolution, unlike the call centre you were talking about. We would both like this to be much better, and you have my total assurance that we continue to work at it.

Mr Mudie

But that is given every year, Ms Homer.

Lin Homer

No.

Mr Mudie

That is given every year I have been on this Committee.

Lin Homer

This is the second time I have appeared before this Committee, and since I was last year we have made improvements while continuing to deliver the efficiencies that have been asked of us. I give you my assurance we will continue to do so. It is one of the most important things we are doing. Since last year, again absolutely focused on customer service, we have introduced 0300 numbers. We were the first government department to do that across the board, again aimed at ensuring people can get through and moving them off the costly mobile calls they used to make. The needs-enhanced service that Ruth referred to is giving an incredibly high quality telephony service to the most vulnerable of our customers. We completely agree with you about the importance of customer service.

Mr Mudie

These are your figures: 79%.

Lin Homer

It is better than last year, and we are aiming—you know our business—

Chair

Sorry to interrupt, but what is the answer to Mr Mudie’s centre point, which is that 21% of people can’t get through, because they are the people who are ringing us up and who are e-mailing us and contacting us saying, “We had a go and we just could not get through”?

Lin Homer

Part of the answer is ensuring that people know what they need to know as easily as possible. A significant amount of our calls are people phoning for reassurance. Part of the answer is improving our online information and part of it is getting our digital calls better. Last year in the self-assessment peak 84% of people did their self-assessment online and about 94% also did it on time, and that takes calls out of the call centre. Another part is dealing with the peaks of our workload, because the ability to go beyond the 80% is also about dealing with both the SA peak and the tax credits peak. It is the nature of our business that, however, many people Ruth has in a call centre, we struggle in those few busy weeks of the year. To deal with that, this year we have moved 2,000 of our staff from the rest of the business to work alongside the personal tax people to deal with the peak. That is a direct commitment to the point Mr Mudie is making about trying to put our entire resources where the customer most needs them.

Chair

Do you think it is likely that you will be coming before us shortly able to say, “Well, we have it to 90%”?

Lin Homer

I do not think this year, no. As Ruth said, what we feel we should try to do this year is maintain 80% consistently throughout the year instead of, as we did last year, hitting over 90%—I think we were 93% for five months of the year, which is the industry norm, but at other points we were significantly below that. We are trying to balance people’s expectations all the while and get to a consistent level and then build from that.

Chair

Well, you have heard the concerns of the Committee.

Lin Homer

We share them, we absolutely share them.

Jesse Norman

I just have a couple of bread and butter questions about your administration. Staff engagement appears to be significantly below civil service average. Could you just explain why that is and what you are proposing to do to improve it?

Lin Homer

It is below the civil service average, and I think HMRC has been the lowest of the big departments ever since the survey was started. If I could absolutely explain this I might be more confident about the progression we will make. I think there are probably a variety of reasons. I think some of it slightly goes back to the Chairman’s opening points, that in a way the job we do does not make us everybody’s best friend. I think our staff are very diligent about what they do, but do feel slightly downtrodden at times and unloved. I think the other thing is the degree to which we, as their leaders, are giving them enough information about what we are doing and about how we are taking the business forward. We have undertaken a great deal of work this year, as the leadership team, in engaging more directly with all of our staff. We are going through a conversation with all 69,000 of them at the moment about what we are doing, why we are doing it and how we are doing it and trying to make sure we are adequately using and involving the skills of all of our frontline staff. They have strong views. They match Mr Mudie for their passion, and we want to get their insight into our business to drive what we do. We are seeing improvements, but they are slower than I would like, and I think it is about our staff trusting us to listen to their views about what we should do as well as expecting to know more about what we are thinking.

Jesse Norman

What is striking is the combination of the Revenue and the Customs appears to have no more than either the Revenue or the Customs had before, which is quite an achievement.

Lin Homer

It is. Given that the merger was nearly 10 years ago, yes.

Chair

Just before you move off that subject, do you now have a view, in retrospect, about whether the merger was less or greater than the sum of the parts?

Lin Homer

I personally think it was a very sensible thing to do. One of the other discussions we are having with our staff is whether they believed when the merger happened that somehow we were trying to wipe out history. I believe that the history of organisations is incredibly important. We are trying to re-engage with the history of all of our legacy departments, because there is the Contributions Agency as well. There is more than just the two, but I think there is something about allowing our very professional staff to have pride in their long history. I visited Ipswich and handed out five long service awards to five members of staff with 200 years’ service between them. That is extraordinary for a modern business and something to be proud of, I think. I personally think it was the right thing to do, but I think we should have given people more confidence that it did not mean they had to give up feeling proud about what they had done before.

Jesse Norman

Can you just make a brief comment about what effect low morale is having on performance and recruitment?

Lin Homer

It is extraordinary. They register as being one of the lowest engaged members of the civil service but, in terms of their confidence about their own skill and their delivery, they are second to none. Our year-on-year improvement around yield, customer service and efficiency is good. Our sickness rates are going down. They are much lower than they were a few years ago. Again, they are one of the best across the big bits of Government. Their commitment to keeping their professional skills high is good. They just do not have a lot of love for the overall organism. They are deeply committed to customer service in Ruth’s bit of the business and to tax collecting. However, as the Chairman indicated, somewhere along the merger this thing called HMRC did not capture their hearts, I think. That is the bit we have to work on, but there is no doubt about the fact that they come in focused and deliver. As I said, we just had the best ever year in terms of the overall receipts brought in but also for compliance yield. £3 billion more was collected last year than the year before, in a period when you know public resourcing is going down; so against an efficiency saving of about £230 million. I cannot fault them on their effort. I have to give them the right to moan at me if that is what keeps them working hard, I guess.

John Thurso

A session here would not be correct without a reference to Wick.

Lin Homer

To Wick. I was waiting.

John Thurso

I will get it out of the way and express the hope that the innovative home project is working well, and I look forward to hearing more about that from you at some point.

Chair

We have had a bit of Hereford.

Jesse Norman

To what?

Chair

We have had a bit of Hereford, so why not a bit of Wick?

John Thurso

Yes. I thought I would just do it quickly—it sort of keeps the tradition going. Can I move on to the question of direct recovery of debt, which is suggested in the Red Book at paragraph 1.208 and in the consultation that is currently still out? First of all, whose idea was it to go for that power at this time?

Lin Homer

Going back to the conversation the Chairman prompted, we have discussions regularly about things that can made a difference. I think this was HMRC’s idea. We are very conscious that, in relation to debt, the vast majority of the public pay the tax when it is due. Of the amount that becomes debt, the vast majority is paid within a few days of it becoming debt. There are a very small number of people who do not challenge whether the tax is due but just avoid paying it, and we felt that we needed sharper and clearer powers to deal with that very small minority.

John Thurso

Of course, this was brought up in 2007 and consulted upon, and the then Government decided it was a bad idea and not to proceed and there was a considerable objection. What made you think that those objections had gone away or that this Government was likely to be more amenable to the idea?

Lin Homer

I might just hand over to Jim to talk about some of the detail of why we think we could deliver it appropriately.

John Thurso

I am going to come on to some detail, but I just wanted to find out who was giving birth to this. The answer you are giving me is that this is an HMRC idea that is being pushed forward. Ministers were not asking for it.

Lin Homer

Ministers are keen that debt is collected. You know there is an error and fraud taskforce led by Ministers. They completely feel that it is unfair to the vast majority who pay their dues for some people to get away with not. That principle is completely taken by Ministers.

John Thurso

Let us stick with the principle. There is a considerable amount of council tax debt that is outstanding and local authorities are required, in Scotland, to go through a sheriff court, and in England there is similar provision. Do you think that the principle applies to them? Should we be giving local authorities the right to directly access debts in bank accounts?

Lin Homer

In terms of how we do it, we certainly think we can do it in a way that has safeguards.

John Thurso

No, but, as a straight point of principle, if an organ of state called HMRC should have the right of direct access to a bank account, why should a council not have the same right, or the DVLA for tax that is due on cars, or the Television Licensing Authority for television licences?

Lin Homer

That is not the proposition that we have put on the table, and I think it would be—

John Thurso

No, but it is the point of principle I am getting at as to why one organ of state has, uniquely, a point of principle rather than practicality for direct recovery by entry into a citizen’s bank account as opposed to another organ of state in an identical position.

Lin Homer

I think the extent of a power like this is a matter for Parliament to decide. I do not think it would be for me to say. If we are given the go-ahead to proceed and it is done well and Parliament watches us and sees that some of your concerns—because I know you personally have concerns—are resolved, I could imagine a debate will follow, but that is not our proposition at the moment. The situation in relation to taxation is that we have what is loosely called a withholding arrangement in relation to tax, which is significantly different from other arrangements. The vast proportion of tax collected by Ruth is taken out of people’s salary via their employer and handed over to us, so we are already in a position where our situation is quite distinctly different from many others’. I think most people believe that that approach of the vast majority of tax being collected by a withholding approach has been done well.

John Thurso

If you will forgive me, that is an entirely different set of principles and an entirely different argument, and what it says is that there is an amount of tax that can be calculated that is due, and the employer calculates it and the employer pays you. That is perfectly appropriate and absolutely nobody is arguing with that, but we are not talking about that. We are talking about the ability for one organ of state, as opposed to any other, to have the unique right to go against the Magna Carta charter and all the other things that we have established and to go in and seize, without judicial process or review, a bank account. I just want to know if it is justified, because my sense is that Parliament is going to reject it. I just want to know if there is an argument in favour of that principle and, if there is, why it should not be applied to every other area that could have the same argument.

Lin Homer

I disagree with you about quite a lot of what you said. I do not think this is against Magna Carta. I do not think it is substantially different from the PAYE arrangement, and I do think it is about exactly the same position, which is when tax is due—this is not disputed tax, and I want to be clear about this—

John Thurso

No, I quite understand that.

Lin Homer

This is tax that is due that people who are not subject to PAYE are choosing simply not to pay. They are creating an environment within which the normally very low collection cost for tax is made substantially higher by their actions in a way that, if I am honest, in the vast majority of cases we are looking at is wilful. We believe that for the taxpayer as a whole it is right that we have sufficient powers to stop that limited number of people avoiding paying tax in a similar fashion to others. They would still be paying it significantly later than PAYE. I do not think the principle is as you describe it at all.

John Thurso

I will come back to the principle, which is very straightforward. Under PAYE a company pays the tax that is due. There is not a particular problem. You do not have the right to go into that company’s bank account, and I do not think this consultation proposes you have the right to extract the money from that company. If, for some reason, that company fails to pay you, you are going to get it through a process and, as I understand it, that company is not part of what you are suggesting in the consultation.

Lin Homer

The proposal does apply to corporates as well as to individuals. I do need to be clear about that.

John Thurso

Are we back to Crown preference, then?

Lin Homer

No, we are not back to Crown preference at all. What we are talking about is a very small—

John Thurso

If you are owed money and other people are not owed money, and you decide to go in—

Lin Homer

No, I am sorry, Mr Thurso. I know you feel strongly about this, but I do think it is important to put it into context. We genuinely collect tax for a very small collection rate. Well over 90% of people pay their tax when it is due. We are talking about around 17,000 people who do not dispute the fact that the tax is due. They just do not pay. We will have written to them. We will have engaged with them, and they just fold their arms and wait for us to take some other action. Of course we can go to court, but the cost both in time and money of going to court will often outweigh or seriously diminish the amount of tax that is being collected. In those cases, with proper safeguards, which I would like Jim to have a chance to explain to you, we believe that this is a fairer way of extracting the tax everybody is due to pay. By the way, this is also an approach undertaken by many other countries. I think in your recent broadcast you said none. It is in many other countries and much more extensively.

John Thurso

I have yet to find one country.

Lin Homer

The US—

John Thurso

I do not know whether it was a tax person. Somebody very kind sent an email saying I should look at Slovenia, which I duly did.

Lin Homer

US, France, Australia—

John Thurso

All of them—

Chair

Are you saying—

John Thurso

May I just finish this, Chairman?

Chair

Are you saying that the US, France and Australia have the system that we are going to be asked to introduce?

Lin Homer

I think they have a system with fewer safeguards than we are proposing. I think in the case of the US model, which I think you looked at when you met, they can reduce the bank account to zero. We are very happy to hear in the consultation about safeguards, but I think it is inaccurate to suggest that this is uniquely different to all of those other systems. It is aimed at a much smaller number of quite recalcitrant debtors.

John Thurso

I do not want to have an argument about which countries do and do not do it, but what I can tell you is, having checked on the Slovenian example that I was given by email, they have a legal tax code that gives obligations and responsibilities to taxpayers, which I would say would have covered it.

Lin Homer

As do we.

John Thurso

Having lived and worked and paid my tax in France, it is a completely different system in many different ways, and I would suggest that if you look in detail at America there are checks and balances that do not exist. I do not want to spend a long time discussing that. I do not think you have established a point of principle. I think there is one, but let us move on and come on to the practice about this. We have been talking about the level of error within HMRC, which is small but significant. You have in your report the number of complaints dealt with by the adjudicator, the ombudsman and so on—small but important. I had a very interesting brief from the Tax Bar that points out the number of times that HMRC, in court, has failed to make its case and the courts have rejected what had been put forward. Given that HMRC is asking to become judge, jury and executioner in this, it is not simply about making it a little easier to go and collect debt. Is it not very concerning that you are removing from the process that currently exists the legal process simply because it is slow and expensive? Do people not have an absolute right to expect the law to protect them; not for the many people who are deliberately yanking your chain and not paying, but for the very important minority where you are wrong?

Lin Homer

Could I get Jim to run through some of the detail? I think we do accept your point about the need to be incredibly careful with a power like this.

Jim Harra

I think at the start of your questioning you asked what made us think that the objections to this had gone away. In fact, we do not believe the objections to this have gone away. There is nothing new about what is proposed here in the sense that it is similar to powers that are used in a number of major tax authorities around the world, the USA, Australia, Canada and France being some of them, and we have learned lessons from them. It is also a measure that we have looked at before in the UK, but we do acknowledge that, while we believe it is a good proposal, there must be adequate safeguards for people to make sure that they are able to engage with us and that we get it right, and also that we do not go too far in terms of leaving people with not enough money to live on or to keep their business expenses going. The consultation document that we have published—and the consultation runs on until the 29th of this month—sets out the safeguards that we propose to have, which are tighter than the safeguards that we have seen in some of those other countries. It is the case that we know that about half of the taxpayers who owe us £1,000 have savings of about £20,000. These are people who will have been contacted by us on average about nine times, and no less than four times, asking them to pay their debt. We will have information that suggests to us that they have enough money to pay their debt and, before we act, we will look at each case individually, with information from the financial institutions concerned, to satisfy ourselves that that is the case. The next step then is that we will ask the financial institution simply to put a hold on their account. We will not withdraw any money from it. They will be notified, “Your account has been frozen”, and they will have 14 days in which to engage with us either to explain why they do not believe they have a debt or to explain why it is they feel they cannot repay it before any money is removed from their account. We will always leave a minimum of £5,000 in the account, and if there is any balance of the debt left not collected we will use other means to collect it. Furthermore, by looking at each case individually, in some cases we will leave more than that in the account if we believe, from the pattern of expenditure from the account—

John Thurso

Can I ask you a question, please, on that? If you believe somebody has a spending pattern where you might create hardship, how have you obtained that information?

Jim Harra

First of all, we already have information through the returns that we get routinely from banks and building societies, all the accounts that people have.

John Thurso

You are able to look at the returns you get, the information delivered from banks, and have a look and see that my account fluctuates by £10,000 in the mortgage payment and make a decision about what I should be left with.

Jim Harra

No, we can’t.

John Thurso

What were you saying?

Jim Harra

What we do have is information that enables us to identify financial institutions with which people hold accounts. In these cases we will then go to the financial institution and explore with them information that tells us what the pattern of expenditure from your account is.

John Thurso

In my case, if you think I owe you, you will pop along to my bank and say, “Let us have a look at where it is going—does he really need to spend that every month? He has a mortgage payment, so we can work out what we will let him have”.

Jim Harra

That is the proposal so that, when we are ready to make a—

John Thurso

The proposal is you would have a quick assessment of my spending needs and all that and have a look and see, and then make a decision as to what I can keep.

Jim Harra

That is correct, and that may be a personal account and personal expenditure such as a mortgage or it could be a business account, and there could be business expenditure such as wages. Obviously the person who has the best information about the money they need to continue living or to keep their business going is the debtor themselves, and so a key outcome that we want from this is that they will engage with us; otherwise we will have to make the best judgments we can based on the information that we can get from their banks. That is why we have this 14-day cooling off period during which they can get in touch with us. We have tried and trusted arrangements for assessing hardship and for giving debtors time to pay, and we currently have about £1.5 billion-worth of debt in time-to-pay arrangements, which are very important to helping businesses, for example, keep going through difficult times. The most effective thing that these debtors can do is to take advantage of that period to engage with us and to arrange payment of their debt outside these measures, but if they refuse to do so this is an important power that we have to make people pay who can—

John Thurso

You say in your consultation that you will give those who are normally regular payers and have never been a problem in the past nine chances, I think it is; whereas, you will only give those who are bad four. Is there not something that strikes you as weird if somebody who has always been a regular payer has not come back to you after you have given them nine chances of contact?

Jim Harra

On the contrary. In the past—

John Thurso

The point being they have always been fine in the past. It is not unknown for you to get the address wrong occasionally?

Jim Harra

In the past we had a single process for all debtors who went through a series of reminders. When we did some research we identified that some repeat debtors were well aware of that procedure and they thought, “Well, I have only had the seventh reminder; I can carry on because there will be two more”. What we have done is we have shortened the process for those who we know are gaming us, so they get fewer reminders and get moved through our process of debt recovery faster than people who are unfamiliar with our debt recovery process. That is a change that we have made in recent years because it is more effective. One of the things I am sure we will receive during the consultation is whether that pattern of reminders and contact is a sufficient safeguard, and we have set out that that is what our current procedures do. We believe that is sufficient for those people to be well aware—

John Thurso

Why did you want to include tax credits?

Lin Homer

Because we have a significant amount of debt in tax credits, which, again, I think it is important for the general public and for the Exchequer that we tackle. I think you will all be aware that the tax credit system is very prone to both overpayment error and fraud, and to debt, and it is an area that—

John Thurso

Can I just put two propositions to you? Having had the first ever debate on tax credits after their introduction in Westminster, when the then Minister told us how wonderful everything was and how we could rely on the system, every single one of the cases that I have raised over the years ended up being written off because of the errors in the system. There is not a lot of confidence there to kick off with, but the other point I will make is that these are the citizens who we have decided need support from the state. We are not talking about fraud. This is genuine mistake on one side or the other, usually. We all know that. They have filled it in and they have been told they can have a certain amount of money. They get it. They adjust their lifestyle accordingly. Normally it means not a lot of difference, but it is helpful. Then suddenly somebody comes along and says, “Oops, that was all screwed up four years ago and you owe us £70,000. We know that you have been busily saving away in an ISA and you have the money, so we will have it”.

Lin Homer

I think you made an earlier comment about why you would only contact someone nine times if they have had a pattern and a history of paying before. Whether it is tax credits or general tax debt, I just would want to assure you that it is not nine strikes and you are out. What we are trying increasingly to do is to adjust to the individual. If we see someone go through a life event, for instance a bereavement, we will try to put in place extra support. Where people have generally been compliant we will try to understand what might have tipped them into non-compliance. In tax credits we go to quite significant lengths to try to attach any debt associated with tax credits to an ongoing payment. We arrange time-to-pay arrangements, and in tax credits we accept both much longer periods for time to pay and much smaller repayments. As long as we are getting something back we will try to accommodate. Again, I emphasise that the direct recovery of debt is not an approach that we envisage taking at anything like the level other countries do. We are talking about a limited number of debtors who have made limited or no effort to either discuss whether the debt is due with us or any arrangements for repayment, in that space I believe, whether it is tax credit or tax, it is right that we consider further steps to make those people pay.

John Thurso

The Chairman wants me to move on, but one last point. As you say in your report, “Given the sheer size and scale of our organisation, it is inevitable we will sometimes make mistakes and receive complaints from customers.” We can take it as read you will make some mistakes in this process?

Lin Homer

We would accept that, yes.

John Thurso

We all accept that. At the moment that is not your problem, because you make a mistake and the law exists to deal with it, but now you are going to take be responsible for it. So you have made a mistake and you have whacked into the ISA at a moment when there is a big dip in the market. You have flogged his ten grand of shares, and six months later the market goes up. If you had just left it alone it would have been substantially more than you realised for it. Will you be compensating in that circumstance for the full loss that has occurred, or will you just be saying, “Well, no, that was an accident of timing”?

Lin Homer

The one thing I am not sure we have explained clearly is that we are not taking away any of the existing rights to go to tribunals. People can take their tax—

John Thurso

The compensation—

Lin Homer

You have said several times, “You are removing yourself from the judicial system”. That just is not so, and I would want to emphasise that. This is a step we would take after and in addition to all the other things we currently do. We would accept we will make mistakes. In the main, if you have taken money out of an account, it is arguably easier to rectify that than it is to get back the goods you have distrained and sold at auction, which is one of the things we do now. We would accept there will be limited—

John Thurso

But you need a warrant to get inside a property.

Lin Homer

We do not use a warrant. There are circumstances when we have the power to get one, but we have—

John Thurso

You have to go to a magistrate. You can take it outside, but you can’t go inside.

Lin Homer

No, we can and we do. If people refuse us we have to have a warrant. The position is that we think it will be easier to switch back on a bank account and, of course, in relation to something like an ISA, we would, of course, have to accept that there might be rectification needed.

John Thurso

It might be very rare, it may be a one-in-a-million case, but if a house sale falls through because you have had the deposit for the house and did not realise it, if you sell at the bottom of the market or before a particular share goes up, will you pay the full compensation of loss or not under the redress?

Lin Homer

I know you like yes or no answers, but it would depend on the circumstances. There are many cases where—

John Thurso

Who will judge the circumstances?

Lin Homer

Those would be circumstances that would be determined by a court, and I can assure you in the rare cases where a mistake was made we would rectify that. That is an important part of the safeguarding.

John Thurso

Will it be full compensation?

Lin Homer

I want to emphasise that we would hope and expect that our ability to use this power, if it were granted, would prompt people to have the discussion with us that we would like them to be having now. I would be delighted if we never had to use this power, but what I do not think is fair to the general taxpayers who do pay is that a small minority just fold their arms and say, “We know it is too hard for you to chase us. We are not going to bother”. I want to emphasise that it is a small number of people who are wilfully not paying their tax. This is not our first—

John Thurso

You and I will have a long-standing difference of opinion on that, because I think there are fair and legal ways of recovering that money and penalties that you can put in. That is up to Parliament. What is not fair is for Mr Harra and his team to decide what I might or might not be allowed to spend while accessing my bank account, and that is what Parliament needs to scrutinise.

Lin Homer

I will hope and expect that you are not one of the debtors we focus the power on.

Chair

That is a very interesting final remark, Lin Homer.

Lin Homer

Because 99% of people pay their tax. I just really don’t want the Committee to have a sense that we believe we should be given a power to dip into everyone’s bank accounts. We do not. We don’t need to, because the vast majority of British people pay their tax.

Chair

Other colleagues want to come in on a similar point.

Steve Baker

Reflecting on what you have said, what I have understood is that the justification for this power is necessity. Is that right?

Lin Homer

I think what we are trying to do is ensure that the system has an ability to collect the tax that is due from people, and that people do not think simple delay or ignoring is a solution, which I think some of these debtors do. I have been out on a field force visit myself, challenging an organisation that the next step we will take is distraint, which is a current power. His basic answer was, “But I treat you as my overdraft. I always pay my VAT late”.

Steve Baker

You very skilfully avoided saying yes, that necessity is the reason, because, of course, I wanted to remind you of what William Pitt said about necessity. I am horrified that this exception is being made, essentially because HMRC is frustrated with a small minority of people who simply should go to court.

Chair

We need a question, Steve.

Steve Baker

That is the point I wanted to make.

Chair

Okay. Well, we are interested in your replies rather than—

Lin Homer

Understood. It is out to consultation. I am sure you are all going to be giving us your views.

Chair

Our views—there is a collective view of the Committee, which I might come on to in a moment.

Mr Mudie

I am tempted to ask, Ms Homer, has it ever crossed your mind that these people who have not replied to your letters have tried to phone in and could not get through?

Lin Homer

If that were the case that would be a good point to make to us when we do speak to them. There is going to be a dedicated—

Chair

Before we go off that point, you do agree that it is inevitable that eventually it will be the case?

Lin Homer

Well, there is going to be a dedicated helpline for this power, and if it prompted us to be in a circumstance where somebody had tried, of course that would then be a reason for us to back off using those powers. I think it is a good example. What I would say is that there are increasing opportunities, and when we entertain debt proceedings we are writing, we are trying to call or we will do field force visits. We will try to make contact in a number of ways, but if someone were unfortunate enough—I would very much regret if that were the case—that we were at that point and they could show us that they had tried purposefully to get hold of us, that would be a very good reason not to proceed.

Mr Mudie

It is not great odds, is it? It is one in five. It is not exactly winning the lottery. One in five of your customers cannot get through.

Lin Homer

Well, what we do—no.

Mr Mudie

Anyway, go on, we are dealing with this. How much is owed? What is this target sum that you are after? What was it last year, and what was it the year before?

Chair

This is for the 17,000 we are talking about.

Lin Homer

In relation to direct recovery of debt?

Mr Mudie

Yes.

Jim Harra

For this measure specifically, we expect that we will recover an extra £375 million over the first four years of this.

Mr Mudie

How much?

Jim Harra

£375 million within the first four years.

Chair

The question was: what is the total amount that is owing, in your view?

Mr Mudie

In both years. Not the last financial year that has just finished. In fact, I would not chase the figure necessarily if you confirm this. Are you saying that it would improve by £350 million?

Lin Homer

Yes.

Jesse Norman

Over four years.

Mr Mudie

No, over one year.

Lin Homer

No.

Mr Mudie

Over four years?

Jim Harra

Yes. The extra tax revenues that we expect to collect as a result of this measure would be £375 million cumulatively over the first four years.