David Ruffley MP questions Dave Hartnett and Lesley Strathie on Administration And Effectiveness Of HM Revenue And Customs

Wednesday, 16 March, 2011

On the 16th of March David Ruffley MP questioned Dave Hartnett, the permanent secretary for Tax at HM Revenue and Customs, and Lesley Strathie the Chief Executive and Permanent Secretary to HM Revenue and Customs on the Administration and Effectiveness of HM Revenue and Customs.

The text of Mr Ruffley's interview can be found bellow and the full text of the proceedings can be found here

Q177 Mr Ruffley: Thank you, Mr Chairman. Can I say, Mr Hartnett, that I think your opening statement has been very helpful to Mr Mudie's sub-Committee.

Can I just get one thing straight? You described the £6 billion figure in relation to Vodafone as an absurd figure, and I take it that you are saying that £1.25 billion was-did you use the words "real liability"?

Dave Hartnett: I don't remember using those words.

Q178 Mr Ruffley: What was the £1.25 billion? How did you characterise that?

Dave Hartnett: It was the actual amount of money for which the matter was settled. It was our largest ever cash settlement.

Q179 Mr Ruffley: You are saying the £6 billion was absurd and you suggested that was because it was a gross income figure, and did not take account of exemptions under the Act or any other write-offs or losses, so that-

Dave Hartnett: Yes.

Q180 Mr Ruffley: Okay. Just so I understand that.

I take your point that you are trying your best. I certainly don't suggest-like some rather cruel commentators-that you have sold out to big business. I am not going to be as populist as that, but I have to say that some facts suggest that there is huge disquiet on the part of technicians in HMRC. Let me just ask you these questions.

Is it the case that you removed five officials from the controlled Foreign Companies Act legacy team following reports in various newspapers? I think we need to be forensic. Were five people removed from that legacy team?

Dave Hartnett: I don't know the number, Mr Ruffley.

Q181 Mr Ruffley: Was anybody removed from that legacy team?

Dave Hartnett: We moved the work in order to provide assurance to the markets and companies that that work was being kept confidential. Moving the work was the important issue.

Q182 Mr Ruffley: Did you conduct a leak inquiry, or anything similar to a leak inquiry investigation, following the complaints about the treatment of the Vodafone case appearing in the press?

Dave Hartnett: I think that is probably one for the chief executive rather than me.

Mr Ruffley: No.

Q183 Chair: Who would have taken that decision? Was it you? Can you answer the question?

Dave Hartnett: The decision, Chair, about the formal leak inquiry lies with the chief executive.

Q184 Mr Ruffley: Is there a leak inquiry? Let us establish that, shall we?

Lesley Strathie: If I can answer that question, on any occasion where we have a leak of significance, and particularly where the evidence, or the assertions or the print media or any other source, suggest that confidential taxpayer information may have been leaked, I would mount a preliminary inquiry, a fact finding, first of all.

Q185 Mr Ruffley: Not "would". Did you, in this case?

Lesley Strathie: Yes, I am just putting it in context because the first thing is to establish what we know. The second is to have an inquiry and, yes, there is an ongoing inquiry.

Q186 Mr Ruffley: Right. That is helpful. Don't you think that is unusual, Dame Lesley?

Lesley Strathie: I think every one of us who is employed by HMRC takes taxpayer confidentiality very seriously, and I do distinguish between that and any other kind of leak where someone decides to share some information about our operation.

Mr Ruffley: Or talk about your expenses or anything.

Lesley Strathie: I think taxpayer confidentiality is very serious.

Q187 Mr Ruffley: I am agreeing; we've got that. I want to get to the heart of the issue that Mr Tyrie raised in his question, and I agree with it. HMRC, or the Inland Revenue, when Mr Tyrie worked there and when I worked in the Treasury afterwards, was a byword for excellence. Leaks like this never happened, but they are happening now. I want your assessment as to why you think officials are now under investigation. Are there other examples in recent history that you can give this Committee where such a serious leak inquiry was instigated? Something is going wrong with HMRC, isn't it?

Lesley Strathie: I honestly don't know the history. I didn't work in-

Mr Ruffley: You should. You are the Permanent Secretary. Now, come on.

Lesley Strathie: I am sorry, I never worked in the Inland Revenue and so I can't tell you how many inquiries it had. I can tell you that we have had several preliminary inquiries-

Mr Ruffley: As serious as this?

Lesley Strathie: Nothing as serious as this.

Mr Ruffley: Nothing as serious as this?

Lesley Strathie: I would like to put in context that the action we took around this, just in case you are asking it specific to Vodafone, was after three different suggested leaks. That is when we felt we had to, in order to give confidence back. Bearing in mind that the relationship with large business is predicated on shared trust and transparency, why would companies share their information with us if they felt that we would not hold it according to the law as it requires us.

Q188 Mr Ruffley: We agree with all that; you are telling us the mindlessly obvious, with respect. We all agree that taxpayers have to trust the organisation. But can I put it to you that trust and transparency do not seem to be in evidence in relation to the senior management's relations with its middle management and junior staff, because we have leaks here that you, in your own words, have suggested are the most serious in recent times. You agree with that. It does rather suggest as a bit of evidence that something is going badly wrong within the Revenue, in terms of trust between the senior management-Mr Hartnett, yourself and others-and the people who are leaking. They feel so outraged or suspicious that they are leaking in an unprecedented way. Would you not accept that characterisation?

Lesley Strathie: Mr Ruffley, I would say from a generic perspective leaking in an organisation is a sign of bad health.

Mr Ruffley: Yes.

Lesley Strathie: I accept that point.

Mr Ruffley: You accept that. Very good.

Lesley Strathie: What I would say is there are a whole range of channels for whistle blowing inside the organisation, and indeed they are used by many colleagues. People have access all the way up to me, as the chief executive, and indeed to a board and a chairman-there is a range. People can do that anonymously, so there is an issue as to why people choose-if it is on the inside-to give certain information outside and not use any of the channels that are available to them.

Q189 Mr Ruffley: Before you go to sleep tonight, Dame Lesley, I would suggest you ask yourself this question: why experienced professionals in the Revenue, rather than speaking to you, as you have indicated, decide to leak it to Private Eye. That is a depressing commentary on the organisation of which you are Permanent Secretary.

One final question, Mr Chairman, and it is a technical question. If you do not have it to hand, either Mr Hartnett or the Permanent Secretary will be happy to receive it in writing: how many cases have been settled under the controlled foreign companies legislation, so as to produce a lower yield to HMRC than would have been the case if such legislation had been applied in full in each of the last two years, where the settlements in those cases were between £100 million and £1 billion and, secondly, over £1 billion? The last two financial years and between £100 million and £1 billion and over £1 billion, do you have those figures to hand? Mr Hartnett.

Dave Hartnett: I don't think there is a single case, Mr Ruffley.

Q190 Mr Ruffley: Not a single case?

Dave Hartnett: Not a single case. I think we have settled the cases entirely properly, with good governance, and I don't think there have been any dodgy deals in relation to controlled foreign companies.

Q191 Mr Ruffley: I wouldn't be so defensive. I didn't use the word "dodgy".

Dave Hartnett: I was trying to be helpful.

Q192 Mr Ruffley: Yes, or overly defensive. You have not settled for lower yields than would have been the case if the legislation had been applied in full. You have not settled any case between £100 million and £1 billion in the last two years, or over £1 billion in the last two years. Is that what you are saying to this Committee?

Dave Hartnett: I am saying that, Mr Ruffley, but I need to say one other thing. Not about numbers.

Q193 Mr Ruffley: It is not a "but"?

Dave Hartnett: No, no. It is the legislation. The legislation does not lend itself to the precision you are imbuing it with. That is the important issue here. Remember this is legislation, which works very simply: it says, "Is there tax avoidance? Could the transaction have taken place in the UK?" and then if it did-with Vodafone we have said it is Greece and Germany with Luxembourg-"How much of it do you tax in the UK? What are the exemptions, losses and all sorts of other things?" It is not simply a case of applying the rigour of the CFC legislation to get to the precise number, because there is no precision there.

Q194 Mr Ruffley: You are denying that the question means anything?

Dave Hartnett: I am saying that it is a very difficult question, but I was trying to go to the heart of what I thought you were asking, which is, "Have we gone soft"-I know you didn't use those words- "in relation to controlled foreign companies?"

Mr Ruffley: That would be a populist version of the question I have read out twice, yes.

Dave Hartnett: I don't think so.

Mr Ruffley: You don't think so?

Dave Hartnett: I don't think so.

Mr Ruffley: Chairman, thank you.