MPs debated HMRC for 90 minutes yesterday. Not on a particular motion or with a vote - just a chance to express their views. There was more about the closure of HMRC local offices than about avoidance though the latter was mentioned by most speakers. Here's a summary of the speeches.
Westminster Hall debate on HMRC capacity and resources
Tuesday 5 February 2013
Opening speaker – John McDonnell
The first 37 minutes of the 90 minute debate were taken up with the speech of the Labour MP who had obtained the debate, John McDonnell, who chairs the parliamentary group of the PCS, the union which represents most HMRC staff. The views of these staff were quoted throughout his speech. McDonnell began by paying tribute to tax justice campaigners and accusing politicians of mismanaging tax collection and administration over decades. He said HMRC staff felt an “overwhelming sense of frustration, which has at times verged on anger that, as professionals, staff have been held back from fulfilling their role of ensuring that taxes are collected efficiently.” In particular staff were being undermined by cuts, deteriorating work conditions resulting in low morale, and the lack of appropriate professional and legislative tools to do the job. They were being left overstretched and overburdened. This was the main theme of his speech.
McDonnell spent a few minutes of his speech on avoidance. He claimed: "Although the big accountancy firms, along with banks and financial advisers, have been investing in staff recruitment and training on a scale that has produced this massive base of tax avoidance opportunities for companies, there have been massive staff cuts in HMRC and the department feels, therefore, that it has one hand tied behind its back when trying to confront the issue.” He was pulled up by Conservative Mark Field for comparing Corporation Tax payments of some companies with their turnover. He also touched on the high level of tax fraud and the backlog of tribunal cases.
McDonnell acknowledged the Government had recently overseen a rise in HMRC staff levels, but said that overall, staff numbers had dropped by 7,000 since the election. He talked about the impact of cuts on services to individual and small business taxpayers, including phone delays and high costs. He highlighted all the HMRC offices listed for closure. Three other Labour MPs weighed in with criticism of HMRC for closing HMRC officers in their areas, highlighting the knock-on effect on other businesses in the area.
McDonnell listed the causes of low staff morale at HMRC, including job insecurity, a pay freeze and the ongoing threat of privatisation. “What is most galling to HMRC staff and to us is that contracts are being handed out to corporations involved in large-scale tax avoidance.” He cited Capgemini and Accenture. He concluded by describing HMRC as a “department labouring under intense pressure without the resources to cope” and “on the edge of a crisis”. He called on the Government to “open a wider dialogue, particularly through the trade unions, especially PCS, about how HMRC will go forward”.
There was just over 30 minutes for other backbench contributions, which the Deputy Speaker limited to a maximum of five minutes each. Scottish Labour MP Iain McKenzie made similar points to McDonnell about the impact of cuts on HMRC and low staff morale.
Lib Dem Ian Swales – a member of the PAC – talked about the challenges facing HMRC: “the European Union, globalisation, the internet, rising customer service expectations and, as we have heard, tax avoidance on an industrial scale”. He stressed the importance of improving customer service, saying it was not only about pick-up times: “We also need knowledgeable staff on the end of those calls”. He called for more people in HMRC’s transfer pricing department and ‘a lot more people’ on investigation and enforcement to deal with tax avoidance. He called for an approach of “invest to collect” saying HMRC should hire more people to do what investigative journalists have done “getting right to the heart of tax avoidance”. He had visited his own local tax office and found morale there damaged.
Another Scottish Labour MP, John Robertson, spent much of his speech criticising the appointment of three new non-executive board members by HMRC, including current CIOT Tax Policy Director John Whiting. He questioned what they would be doing in that role. He concluded that the problem with HMRC was not its staff but “those who run it and are in charge of those people. That, Minister, is you.”
Conservative MP Mark Field, who represents the Cities of London and Westminster, began by saying “HMRC has a not entirely undeserved reputation as a byword for incompetence, opaqueness and arbitrary action, verging on shambolic”. He said any GAAR must be accompanied by a far better pre-clearance system and the tax system as a whole should be simplified. But he also warned of the danger of tax regulation becoming much more arbitrary: “One of this nation’s greatest assets as a place to do business is our reputation as a predictable, reliable and certain jurisdiction that is underpinned by the rule of law.” Governments and Oppositions should, he said, "cease moralising about [avoidance] and get back to legislating such loopholes out of existence”. He concluded: “we need a much better relationship and more co-operation between tax advisers, companies and individuals, and HMRC, instead of its role being portrayed as a battle with a presumption that every taxpayer is trying to rip off the system”.
Labour MP George Mudie, Deputy Chairman of the Treasury Committee, said the system was failing in two ways: efficiency and fairness. He said that: “For many people - the elderly, those with complicated problems, or those who just have trouble filling in forms - in many towns and regions, offices provide their only chance to meet face to face”. He did not believe a five minute wait on the phone was acceptable. He also asked about the list of 2,000 Britons with Swiss bank accounts given to the Government by Christine Lagarde two and a half years ago. “A number of them - I think 500 - were being looked at for serious fraud. To date, two years later, only one has been charged. Is that the end of it?”
Labour MP Julie Hilling focused on the tax gap, looking at each element of it. She said firms delaying bonuses to miss the 50p rate was immoral and implied that Starbucks, Amazon and Google were too. (Again Mark Field intervened, to point out they paid significant VAT and NI.) Hilling argued that local HMRC offices would have local knowledge of the scale or scope of businesses in their areas which would help ensure that the right tax is paid. She said it was also “about assistance so that people can try to get their tax right, so that they are not evading tax by error or neglect - unwittingly or unwillingly.”
Catherine McKinnell MP, Shadow Exchequer Secretary, and David Gauke, Exchequer Secretary, each spoke for 10 minutes at the end of the debate. McKinnell began by noting that Britain was “a generally tax-compliant country, with 93% of all tax paid as it should be” but maintaining and improving this figure depended on HMRC being properly resourced. She said there were “serious concerns that HMRC staff and resources are being stretched to the absolute limit, and that situation is likely to get worse”.
McKinnell quoted the NAO’s criticism of HMRC’s customer service performance. In line with concerns expressed by LITRG, she urged the minister to ensure that the recently announced move away from 0845 numbers will benefit people on low incomes, who often use pay-as-you-go mobile phones rather than mobile contracts or landlines. She quoted a survey by the CIOT of some of its members in the summer of 2012 which “found significant concerns regarding customer service provided by HMRC, including: delays in post handling; telephone calls that are passed to a customer service centre, resulting in a four-to-six week further delay; increases in basic errors; and delays in getting through to PAYE telephone lines.” She also mentioned a similar survey by the ICAEW.
McKinnell accused the Government of not thinking through how their policies will be delivered on the ground. The changes to child benefit and real time information were “just two areas of significant change where HMRC is being expected to deliver ill-thought-through Government policy with significantly reduced staff and resources.” On RTI she quoted answers to recent parliamentary questions suggest that the IT system matching employers with their bank records in the RTI pilot has a current failure rate of 25%. She also questioned whether funding for tax avoidance initiatives was indeed new or just shifted from elsewhere in HMRC, and warned about the number of highly skilled, experienced staff who have left HMRC. She concluded: “I urge the Minister to accept that there must be a limit to HMRC’s capacity to do more with less.”
The minister, David Gauke, began by setting the context of the debate, talking about the changes at HMRC since its formation. He reiterated that the Government’s strategy was one of requiring HMRC to make efficiencies to reduce its costs with some of these reinvested in tackling avoidance and evasion (and he set out how). Over the spending review period there was, he said, an increase of about 2,500 in the number of staff HMRC deploys on its compliance activities. He said he understood that the NAO would publish a report the following day on cost savings in HMRC and the way in which HMRC has proceeded.
Gauke said the Government had decided to exempt HMRC from cuts imposed on other Departments in the 2012 autumn statement and instead (a) invested a new £77 million in tackling avoidance and evasion, “through improving HMRC’s computerised risking systems; further strengthening the risk assessment capability across the large business sector; increasing the attention given to offshore evasion and avoidance, and… increasing the staff employed to target avoidance and evasion by the wealthy”; and (b) a further (apparently different) £77 million “to accelerate HMRC’s debt collection activities and bring in about £1 billion in tax over the period; reduce tax credit error and fraud and reduce losses by about £0.5 billion, and expand HMRC’s digital service to its customers”.
Gauke said the latest performance figures showed that post handling in local offices was the best since HMRC was formed. He praised HMRC’s self-assessment filing system and said the new computer system was “on track to bring PAYE up to date by March 2013”.
You can read the full debate here.
Note: The CIOT makes itself available to brief politicians of all parties on tax issues, in a non-partisan manner.
CIOT External Relations Manager
Wednesday 6 February 2013