Monday, November 26, 2007

Blog 52


I am fascinated by the reaction of the Opposition parties to the HMRC fiasco over the lost computer discs. You know, the ones containing personal information about 25 million people that could cause massive grief to most of those people if it were to end up in criminal hands.

Why call for the head of Alistair Darling? Although he is ultimately responsible for HMRC he cannot be expected to have any detailed knowledge of how it operates. He has a junior Minister, Jane Kennedy MP, who has responsibility for HMRC. If anyone’s head should roll it should surely be her’s. Yet no-one has called for this and she has herself not thought it appropriate even to offer an apology let alone contemplate resignation.

Personally I would have thought that if anything ever called for a public enquiry this is it. As more and more information comes out it seems clear that this is not a question of a junior clerk doing something stupid. It is a question of someone far higher in the organisation making a calculated decision to risk breaching confidentiality in order to save money.

To that extent there is a certain logic in calling for Gordon Brown’s resignation, not because he is Prime Minister but because as Chancellor he initiated the savage cuts to HMRC’s budget that forces it to count the pennies. But whilst heads rolling might be a traditional political game it is not what ought to concern the taxpaying public. Our concern should be about:

a) the importance of confidentiality to the integrity of the tax system and the extent to which it should be sacrificed by other considerations, of which cost saving is only one,
b) whether HMRC can operate effectively at its current staffing levels, and
c) whether HMRC should concentrate on collecting taxes rather than trying to earn extra money, or build a bigger empire, by becoming an outsourcing resource for other government departments.

Perhaps I ought to address the last question first because I think that it detracts from the real role of HMRC. I do not think the Inland Revenue have ever been good at mergers. The merger with H M Customs and Excise to create HMRC seems to me to be a textbook case study of how not to do it. There is little evidence of planning, they have rushed at it like a bull in a china shop trying to consumate in 12-18 months a merger that ought to have taken five years to do properly. They have diverted resources to reviewing their powers and seeking parliamentary changes before working out the ideal structure for HMRC, rather than adopting the commonsense approach of first restructuring the department and then looking at what powers different people in that revised structure need to operate effectively.

In these circumstances it may read strangely for me to complain that they have not sought to integrate their role as an outsource resource into the mainstream. The National Insurance Contributions Office, The Child Benefit Office and the National Minimum Wage Office are discrete parts of HMRC which are largely staffed by people without an Inland Revenue or Customs background. This seems to me significant in the context that this latest scandal occurred in the Child Benefit Office.

Which brings me to question 1, confidentiality. In the past confidentiality has been the backbone of the tax system. The concept was that, even if a person committed a criminal offence in order to generate income, he should feel able to disclose the income to HMRC without HMRC passing on the information to the police. There has never been a public discussion as to whether or not that is a good thing. Does the public interest in deterring crime outweigh the public interest in collecting taxes? If it does is that an absolute concept or might it depend on the facts. Most people would agree that if a person abuses children in order to sell pictures of that abuse on the internet there is a greater public interest in his going to jail than in his paying tax on his profits from such sales. I suspect however that many people would think that if a person sells counterfeit goods from a market stall there is a greater public interest in encouraging him to pay his tax on his profit than in telling the police that his goods appear counterfeit.

Over recent years this concept of confidentiality has been to a degree eroded by the government. There has long been a right to disclose information to foreign tax authorities. The Social Security Administration Act 1992 and Tax Credits Act 1999 both allow information to be passed to the DSS (or whatever it is currently called). But the floodgates were opened by the Criminal Justice and Police Act 2001 which permits disclosure to the police even where HMRC merely suspect that a criminal offence may have been committed. So perhaps confidentiality is now regarded as of less importance than in the past. Or perhaps not! It is still a criminal offence for an HMRC Officer to disclose information to someone outside the range of permitted disclosures – albeit one that then cannot be prosecuted without the consent of the Attorney-General.

If confidentiality is still a vital attribute of the tax system, so as not to discourage disclosure, is it wise in order to generate a few extra quid from the government, for HMRC to make confidentiality a hostage to the Child Benefit Office and similar outsourcing sections of HMRC whose staff may not have been instilled with the concept of confidentialilty to the extent that has traditionally happened in the tax collection side of HMRC? The public will not distinguish between different parts of HMRC. It is HMRC as a whole that can no longer be trusted in the eyes of the public.

And what about cost-cutting? It is clear that the NAO did not ask for, and did not want, the detailed personal information that has gone astray. Instead someone within HMRC seems to have taken a decision that they could not afford to segregate personal details from the information that NAO wanted so they would take the risk of the confidential information going astray in the post rather than incur the cost of keeping it confidential. That ought to worry us all. If HMRC are not adequately resourced to enable them to function properly – and surely protecting confidential information is a fundamental part of their functioning properly – what other values that contribute to the integrity of the tax system have been similarly sacrificed?

Most commercial databases do not require the entire database to be copied but enable some only of the information to be extracted. Why have HMRC spent millions of pounds in building one that does not have such a basic facility? And how can a junior member of staff download the entire database? Shouldn’t a secure system require the input of a password by a very senior person to enable this to be done? After all it is hard to think of any legitimate circumstance in which there should be a need to download the whole of the information, except for back-up purposes or if it is wished to move to a new system. Junior staff have no need to do either. Perhaps security and confidentiality were not thought about when the system was built. If so, that would be horrific.

There seems to me to be a lot of questions that need to be answered. I find it depressing that neither the Opposition parties nor the Public Accounts Committee seem inclined to ask them. Indeed the loss of public confidence is surely such that the most sensible way to restore it is not for Gordon Brown to appoint someone to look into a discrete issue and report to him (perhaps so that he can then edit the information that he is prepared to allow into the public domain or “spin” the content of the report) but to be open and appoint someone to hold a public enquiry into how HMRC ensure confidentiality in the tax system. Taxpayers might then be confident that that concept has not been sacrificed to Gordon Brown’s enthusiasm for cost-cutting.

Robert W Maas


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