The Question was as follows:
To ask Her Majesty's Government whether they agree with the view expressed by Mr Peter Back, a director at the Inland Revenue until 1995, that the Inland Revenue's compliance programmes and investigations into tax-evading companies are "in disarray".
My Lords, until his retirement from the Inland Revenue in 1995, Mr Back worked in one of the department's regions. In the eight years since, there have been profound changes in the Inland Revenue's responsibilities and how it does its work.
My Lords, I can assure the House that I have the permission of my noble friend to ask the Question.
I thank the noble Lord for that reply. The Chancellor is currently increasing government borrowing while the main tax collecting agency is allegedly losing the fight against tax evasion. Is the Minister aware that the Revenue's business division brought in £600 million less in 2002 than in 2001, and that the total tax secured from all of the Revenue's non-compliance investigations in 2002 was £1.7 billion less than in 2000? Why is that?
My Lords, I, too, have read the article in the Guardian which no doubt prompted the Question. My response is given in the context that the Inland Revenue collects well over £200 billion in one year. The article and the Question concern the regulation and enforcement of tax obligations. The thrust of the Inland Revenue in recent years has been to encourage compliance—in other words, that people should pay the right tax and receive the right benefits the first time, rather than requiring enforcement action. It has been generally agreed that that is a successful policy—but, of course, it does not show up in the enforcement statistics. The chairman of the Inland Revenue has made clear that where taxpayers—including large business taxpayers—are not willing to co-operate with the compliance procedures, the Revenue will be aggressive and ruthless in following up. That will certainly be the case.
My Lords, does the Minister agree that, if things are as they should be within the Inland Revenue, his Answer to the Question initially should have been a simple short "No"? Why could he not give that Answer? Why did he have to go into what one might describe as "hyper-flannel mode"?
My Lords, I thought I was pointing out the difficulty for Mr Back in being up to date with the current situation in the Inland Revenue. In my response to the supplementary question of the noble Lord, Lord Glentoran, I sought to explain to the House the way in which the Inland Revenue approaches these matters. I had thought there was general agreement on the proposition that assuring compliance is a more effective way of preserving tax revenues than subsequently looking to enforcement procedures and even prosecution.
My Lords, does my noble friend the Minister agree that one does not necessarily have to work for the Inland Revenue to keep abreast of what that department is doing? Is it not also true that this is the self-same Mr Back who, when self-assessment was being introduced into the Inland Revenue, forecast that substantial numbers of people would not submit their returns by the due date and that, as a consequence, the Revenue would send a substantial yield to the Exchequer for interest on late payments? The Revenue denied that situation would arise. In the event, Mr Back was proved right, and it is now a major money spinner for the Inland Revenue. Is it not possible that he may be right this time round—as he was on the previous occasion—and the Revenue wrong?
My Lords, everything is possible, but that does not follow.
My Lords, I declare a past interest as a former general-secretary of the Inland Revenue Staff Federation. My colleague and noble friend Lord Brooke prompts me to rise. Like my noble friend, I know Mr Back. While I do not necessarily endorse what he said, his hyperbole is unusual. Ordinarily, I would listen carefully to what he had to say. I should also like to say—
My Lords, I have a question—but it is futile not to preface a question with an explanation. The noble Lord, Lord Brooke, referred to self-assessment. I was one of four people who went to America with the then chairman of the board to look at the self-assessment system in America. We returned with a unanimous report that it was not suitable for the United Kingdom for many reasons.
My Lords, my two questions are: first, to what extent do the problems in the Inland Revenue relate to the burden of self-assessment; and, secondly, to what extent have the extra burdens referred to by the Minister created a management problem in the Inland Revenue which should be examined?
My Lords, we have discussed self-assessment in great detail on a Question relating to that subject. I acknowledge that the noble Lord has particular expertise in this area and is entitled to ask whether self-assessment is an additional burden which causes deficiencies in other parts of the work of the Inland Revenue. I have no evidence that it does, but I should be glad to discuss the matter with him and to discuss it in front of the House.
My Lords, in reply to my noble friend Lord Tebbit, the Minister said that securing compliance with the regulations is infinitely preferable to detecting and punishing infringement. Will he kindly pass on that view to the Home Office—as it is precisely what I was attempting to say about that department's handling of crime?
My Lords, I seem to be doomed today to take questions that bear no relation to the Question on the Order Paper. The Home Office is represented on the Government Front Bench. I did not say that compliance with regulations was more important than enforcement; I said that compliance—in other words, people paying the right tax the first time—is more important.
My Lords, does the Minister agree that the revenue achieved from the Large Business Office in respect of corporation tax fell by some 30 per cent in 2002 compared to the figure for 2001? Does he accept that, while there may be a greater degree of compliance and virtue, that degree of increasing virtue over a single year looks implausible? Therefore, should he not be taking Mr Back's criticisms more seriously than he appears to be?
My Lords, I agree with the noble Lord's figures. However, there is a further consideration in the make-up of those figures; namely, very large under-payments and very large receipts by the Large Business Office. The top 10 receipts in the year 2001–02 were £232 million; whereas in the year 2000–01, they were £663 million, which accounts for more than £400 million of the difference. Those very large cases take years to build up. The year in which they happen to fall is a matter of chance.