Recovery of debt by Inland Revenue (HC 584-I) Public Accounts Committee 5 May 2004

Evidence given by Miss Ann Chant CB, Acting Chairman, Mr Stephen Jones, Director of Finance and Mr Gordon Smith, Director, Receivables Management Service, Inland Revenue, examined.

Q19 Mr. Gerry Steinberg (City of Durham): Did ministers take your advice on the CSA?

Miss Chant: Do you mean when I was the chief executive of the CSA?

Q20 Mr. Gerry Steinberg (City of Durham): I would not have thought you would be giving much advice afterwards.

Miss Chant: I was thinking of before, of course. I did not know whether you meant that.

Q21 Mr. Gerry Steinberg (City of Durham): The CSA was the worst organisation that Members of Parliament, or at least I have come into contact with. Did ministers take your advice then?

Miss Chant: I am trying to cast my mind back. It seems a very long time ago that you and I sat and talked about it. I regularly talked to ministers and I can remember that in the two and half years I was there it was an exceedingly difficult public service to deliver and there were significant improvements. You are going back a long way.

Q22 Mr. Gerry Steinberg (City of Durham): Perhaps somebody could tell us what the improvements are then. Recovery of debt is not really consistent, is it? This is not in the Report, but it comes under the title of the Report. Do you know much about football?

Miss Chant: Nothing whatsoever.

Q23 Mr. Gerry Steinberg (City of Durham): That is a pity because in terms of football the Inland Revenue have a very important role to play, so I suggest you learn a little bit about it.

Miss Chant: Football? Do you mean football clubs?

Q24 Mr. Gerry Steinberg (City of Durham): I mean football clubs, yes.

Miss Chant: Only as a business. I know as much about a football club as a business as I would any other business.

Q25 Mr. Gerry Steinberg (City of Durham): Do you know much about football clubs in administration?

Miss Chant: As I would with any other business.

Q26 Mr. Gerry Steinberg (City of Durham): That is good then. If that is the case, could you explain to me, in recovering debt, which this Report is all about, why Leicester City Football Club, when they went into administration, paid 10p in the pound, along with other clubs which went into administration? Bradford City paid 20p in the pound in administration and they have gone into administration for the second time. York City Football Club went into administration. They paid 55p in the pound; quite a considerable amount more than Leicester and Bradford. Carlisle Football Club went into administration and they had to pay the Inland Revenue 100p in the pound that they owed. Because of the 10p in the pound Leicester City were able to continue as a football club; they survived with virtually no problems whatsoever, they did not have to sell their players and they became quite successful. Carlisle, because the Inland Revenue claimed 100p in the pound had to borrow £1.1 million, which cost them £17,000 per month to survive. Is it not funny that Carlisle and York have been relegated and are now out of the Football League? It is not funny, it is peoples' livelihoods. It is thousands of people who go there for pleasure, but because of Inland Revenue action, differential treatment was given to different clubs. Why?

Miss Chant: I have already said that I know absolutely nothing about football and I could not talk about an individual business anyway. Shall we just talk about a group of businesses who are in the same trade?

Q27 Mr. Gerry Steinberg (City of Durham): Yes; absolutely.

Miss Chant: Some of them become insolvent and they come to different arrangements with Inland Revenue. That is absolutely normal, that would be entirely typical and understandable under insolvency legislation. It would entirely depend on the business set-up, the creditors, their liabilities, their business outcomes. They will just be treated like any other business. Let us go right away from football. If ten sweet shops all went insolvent throughout the United Kingdom and you analysed what their creditors got, you would probably find ten different answers.

Q28 Mr. Gerry Steinberg (City of Durham): I want you to tell me, if you cannot tell me now that is fair enough because I have dropped this on you, but I want you to write to me and tell me why Leicester City Football Club paid 10p in the pound and other football clubs did when they went into administration -

Miss Chant: Do I take it you are a Leicester City supporter?

Q29 Mr. Gerry Steinberg (City of Durham): No, I am not; I am not a supporter of any of them. I just read it in the newspapers and I think it is totally unfair that the Inland Revenue can determine the future of a football club and frankly you should not be able to do it. If you are going to charge the Carlisle United Football Club 100p in the pound in administration, why is Leicester City not charged 100p in the pound?

Miss Chant: I am going to ask Gordon Smith, who has a huge amount of detail on insolvency at his fingertips and indeed has given evidence to a particular select committee on this. Before I do, I am pretty sure I cannot write to you in those terms, because I cannot give details about any business.

Q30 Mr. Gerry Steinberg (City of Durham): I want to know the reason behind your policy.

Miss Chant: But you started off by naming a football club and asking me to write to you.

Q31 Mr. Gerry Steinberg (City of Durham): I had to give you an example, otherwise you would not have known what I was talking about, would you?

Miss Chant: I could have guessed. You could just have said a football club. We may be able to give you some general things. I certainly cannot explain in detail why one business would pay a certain rate.

Q32 Mr. Gerry Steinberg (City of Durham): I am going to come off this is a minute because I want to come onto something else, but I want to know why the Inland Revenue sentenced York and Carlisle to oblivion and yet Leicester City Football Club and Bradford City, which has gone into liquidation twice, and others were given virtually no debt whatsoever by the Inland Revenue and you treated them differently and I want to know why.

Miss Chant: It is a general thing about businesses being treated differently when they go into liquidation.

Q33 Mr. Gerry Steinberg (City of Durham): Never mind about businesses: football clubs.

Miss Chant: That is the point, there is no difference, they are businesses.

Mr Smith: Let me repeat that we do not treat football clubs differently from any other businesses at all. We have no reason to. The parliamentary All-Party Football Group recently looked precisely at those allegations, those perceptions which have been generated by the media that we behave inconsistently or unfairly. They concluded that we had no case to answer. Alan Keen who chairs the group -

Q34 Mr. Gerry Steinberg (City of Durham): I am not talking about Alan Keen. I am not talking about anybody.

Mr Smith: I am sorry, but -

Q35 Mr. Gerry Steinberg (City of Durham): Never mind about being sorry. I am not talking about Alan Keen. Never mind about being sorry. I am asking a specific question, not what you did with the All-Party Football Group or whatever; we are not talking about them.

Mr Smith: If I may say so, I am going to give you the same answer I gave to the Football Group and that group accepted our explanation. We are governed by insolvency law. Although we cannot comment on individual cases, we absolutely refute any suggestion we behaved inconsistently or unfairly. Something I can say about Leicester City, which is in the public domain, is that we were a minority creditor. We had no say or influence at all in the final outcome of that case. I know it has been widely bandied about in the press as evidence that we have been unfair and inconsistent. There is just no basis for that.

Q36 Mr. Gerry Steinberg (City of Durham): You write to the Committee and tell us why different football clubs were treated differently.

Mr Smith: Might I also suggest you read the All-Party Football Group's -

Q37 Mr. Gerry Steinberg (City of Durham): No, I shall not read their report. I am asking you to supply -

Mr Smith: Perhaps I could invite other Committee members to do so then. It was published in February and it answers this point.

Q38 Mr. Gerry Steinberg (City of Durham): I am asking you to send me a report. Thank you.

Miss Chant: Excuse me. Is it you or the Committee?

Mr. Gerry Steinberg (City of Durham): Send it to the Committee.

Q39 Chairman: It is for the Committee. Please send it to the Clerk to the Committee.

Miss Chant: I thought so.

Q40 Mr. Gerry Steinberg (City of Durham): To the Committee; thank you. Paragraph 1.8, page 11 tell us that over £3 billion of tax has been owing for more than a year. You said to the Chairman that you could not trace it and you said one of the reasons was because you could not trace people. That is because your system for tracing people is so pathetic, to be quite honest, is it not?

Miss Chant: No.

Q41 Mr. Gerry Steinberg (City of Durham): I shall come back to that in a minute. The budget for 2003 gave you an extra 75 debt collectors, who should bring in something like £85 million in the next year. This to me does not seem a very good rate of return for the amount of money which has been put into it. Other than with more staff, how are you going to get these people to be more productive?

Miss Chant: I think there were about three questions there, were there not?

Q42 Mr. Gerry Steinberg (City of Durham): Yes.

Miss Chant: I lost the first one but in the second one you said that we were going to have an extra 75 staff, as we have, and get an extra £85 million a year by 2007-08. That is a very big return: £85 million a year by then.

Q43 Mr. Gerry Steinberg (City of Durham): With 75 extra staff?

Miss Chant: Yes.

Q44 Mr. Gerry Steinberg (City of Durham): I do not think that is a very good rate of return, to be quite honest.

Miss Chant: You do not? Right. Okay. We will differ on that. We have indeed started that and we are exceeding our target for bringing in what we thought we would bring in by way of extra yield for those people already. I have remembered what you started of by saying. You said a large part of it was because we could not find them. It is actually £300 million of that £3 billion and it is because temporarily we cannot trace them.

Q45 Mr. Gerry Steinberg (City of Durham): You could not find them.

Miss Chant: Yes, find them; at the moment we just cannot trace them. We have enormous resources to trace people and we do actually trace hundreds of thousands of people very swiftly every year.

Q46 Mr. Gerry Steinberg (City of Durham): You do not even ask for names and addresses on your income tax forms, do you? You do not ask people to inform you whether they have changed address, you do not ask for telephone numbers. If I remember rightly from reading the Report, it costs the private sector 3p to chase somebody on the telephone and it cost your department £8.50. That is a big difference. You could just let the private sector do it and probably make a profit out of it.

Miss Chant: I am surprised somebody did not raise that before. I need to comment on paragraph 2.11.

Q47 Mr. Gerry Steinberg (City of Durham): I dare say it is going to be raised again.

Miss Chant: Let me deal with that now. We do indeed trace people with the huge resources we have in our systems. We have already this year managed to bring in - I am sorry to be a bit technical - the simplest way to say it is a browser technique and instead of somebody having to search several different systems, they key in and it traces for our staff, right across our systems. We are increasing our productivity on that. In particular on paragraph 2.11, I am very sorry, Chairman, but might I be allowed to give an apology to the Committee. I had plenty of time to look at this Report and I was allowed as usual to give some amendments and amplifications where I thought this would be helpful.

Q48 Mr. Gerry Steinberg (City of Durham): I only have two minutes left.

Miss Chant: But it is very important. That figure leapt out at me when I read it. I am terribly sorry but the 3p from the private sector and the £8.50 for us is the truth and nothing but the truth, but it is not the whole truth. The exercise which was carried out by that company privately was to trace automatically only through a small number of IT systems, completely automatically, and they did that for 3p. What our staff did in the telephone centre was (a) a lot of other work and (b) they had to deal with more complex work. They were writing, ringing, chasing, manually tracking all sorts of systems and it was their entire cost. You did ask that first question: why was it that we were not more effective.