INLAND REVENUE DEPARTMENT (REPORT OF ESTIMATES COMMITTEE)

HC Deb 07 December 1970 vol 808 cc45-131

Motion made, and Question proposed, That this House takes note of the Fifth Report from the Estimates Committee in session 1968–69 and of the related Departmental Observations. (Command Paper No. 4314.)—[Mr. Eyre.]

3.33 p.m.

Mr. Dick Taverne (Lincoln)

In the absence of the consideration of this Report being moved by the Chairman of the appropriate Committee, it is perhaps for me to launch the debate on an important Report which came from the Estimates Committee concerning the Inland Revenue Department.

The whole House must be grateful to the Committee for all its labours and for its final Report. The individual taxpayer knows well enough of the delays which affect him. The staff are all too well aware of the burden which they have to face, but it is right that the House and the country as a whole should direct their minds to the problems which are posed on the present workload of the Inland Revenue.

I want first to place it firmly on the record that we get in general from the Inland Revenue a very high standard of work. Although it may not always be apparent to Members of the Committee on the Finance Bill—

Mr. J. Bruce-Gardyne (South Angus)

On a point of order. We seem to be having some difficulty with the acoustics. Is it possible for you, Mr. Speaker, to suggest that the hon. and learned Gentleman should speak up?

Mr. Speaker

Perhaps the hon. and learned Gentleman will accede to that request.

Mr. Taverne

I suspect that it is not a matter of my voice but is a matter of the engineering of the House. I think that I can manage to proceed without the assistance of artificial means, and I shall certainly speak up for the benefit of the hon. Gentleman.

I was paying a tribute to the work of the Inland Revenue and saying that, although it might not be immediately apparent to every member of the Committee which considers the Finance Bill, it is a fact which most Treasury Ministers have recognised, that the quality of the briefs and the information with which they are serviced is of a very high standard indeed.

It is true that Ministers who advocate reforms find from time to time that they are perhaps somewhat frustrated by the expertise in the Revenue in explaining the obstacles in the way of what they propose; but this is not necessarily to criticise. It would indeed be deplorable if one was not aware of the obstacles to suggested courses of action. I certainly found that whenever a reform was decided upon, whatever the initial enthusiasm of the Revenue had been, it spared no effort in promoting the reform in the best possible manner.

It is not just the intellectual quality of those at Somerset House which is impressive. I was glad to see from the evidence quoted in the Report that the Staff Federation had a high regard for the management which came from the top. In its written evidence the Staff Federation stated that, although it had some reservations at the lower levels, it commended the top management at the Board and head of division levels. I believe that this feeling of high regard is reciprocated by the top management in relation to the members of the Staff Federation.

On this occasion the Board has demonstrated its reasonableness in its reply to the Committee's recommendation, and it has been encouraging to find that a large number of the recommendations which were made have been accepted by the Inland Revenue.

Nevertheless, the main position revealed by the Report is undoubtedly a disturbing one. The workload is heavy. The strain on the staff is very considerable. There are difficulties of recruitment. What is perhaps even more serious, there are difficulties of retention of highly trained and skilled staff. This position clearly has the most serious implications for the reform of taxation.

When we have discussed the Finance Bill hon. Members on both sides have shown themselves to be extremely impatient of arguments which are concerned with administrative convenience or administrative difficulties. In present circumstances it would clearly be quite wrong for hon. Members to disregard the administrative effects of what they propose and what they discuss. However, it is also intolerable if tax reforms of great economic and social importance cannot be effected because the administrative machine of the Revenue cannot cope. I know of no other Government Department where there are such severe limits placed on a Government's room for manoeuvre in considering reforms. These are restrictions placed on the administrative framework by the load which at the moment the Revenue must bear.

I believe that several conclusions flow from this. First, in considering particular modifications of the law I have no doubt that we must look perhaps rather more than we have done in the past to simplicity, if necessary at the expense of some equity. There is a universal demand that our tax laws should be simpler and fairer. People do not realise that in most cases we cannot have both. Every modification to meet a particular case, to create a further exemption, to give special treatment to a specially deserving category of citizens, complicates the tax structure and more often than not in itself gives rise to further anomalies which call in due course for further modifications.

One of the examples given in the Report are some Clauses which were added to the 1969 Finance Bill, I believe at the Committee stage, relating to the disallowance of tax relief for interest payments. This is a perfectly good example of how equity complicates the law. I am not suggesting that we were wrong to add those clauses. Clearly one cannot always disregard equity. But this is a good illustration of how the two can conflict. Inevitably the pressures from overseas come mainly on the side of equity. In general, we should give more thought to preserving or promoting simplicity in the light of the administrative congestion which prevails.

Next, I have no doubt that the Inland Revenue is one of the foremost areas in which it would be wrong for the Government to take too restrictive an attitude to the expansion of staff. This is not, in fact, one of the recommendations of the Committee.

If there is one point on which, perhaps, I would like to have seen the Committee go further in its recommendations than it did, it is in looking at the clerical and executive staff and in seeing how far the position of recruitment and retention there could yet be further improved. Certainly the question of the expansion of staff is essential if we are to eliminate the formidable barriers to future reform. This will apply just as much to any reforms which the Government may have in mind as it applies to what the Opposition will have in mind when they return to power.

The Revenue works in practice, I find, rather surprisingly, by always estimating the amount of work involved in blocks of hundreds of thousands of hours' overtime. But even reforms which simplify the law and which may save time in the end may still often initially require a large amount of overtime, and it is wrong that putting too great a burden of overtime on the staff should prevent necessary change.

I understand that a group of consultants has been appointed to look at the causes of wastage. Not only expansion but retention is, of course, a vital question. Clearly, the problems of the Revenue would be eased to a considerable extent if the phenomenal rate of wastage could be reduced. I understand that the wastage rate of the tax officers (higher grade) alone has more than doubled in the last five years. Can the Financial Secretary say when he expects to see the report from those consultants? Certainly when that report is made I hope the House will have an early opportunity to discuss it. Naturally he or the Government will discuss it with all the staff involved, but I hope that this House, too, will have an opportunity to consider it.

Thirdly, there is, in my view, an urgent need for new premises for certain tax offices. The conditions in some of the central London offices that I visited were quite intolerable and could only have a bad effect on the recruitment and retention of staff. So whatever the restraint on Government spending in other directions, it seems to me that the improvement of the position of the Revenue does have a very high priority. I hope that the Financial Secretary himself has also visited and, if he has done so, will continue to visit the premises and see for himself the conditions under which some of the staff have to work.

The main recommendation made by the Committee to ease the general position was the suggestion that there should be an independent inquiry to simplify and remodel the national tax structure and to review the organisation of the Inland Revenue. Before I come to that, however, I should like to take up two particular recommendations.

The Committee recommended that surtax should be decentralised and transferred in due course to the Chief Inspector of Taxes branch. The Revenue reply to this was that this would cost between £500,000 and £2.3 million over 20 years. The Revenue does not accept the recommendation, but says that it will keep it under continuous review.

It may be difficult to press this suggestion at this time, because it obviously depends to a large extent on what attitude to surtax and the amalgamation between income tax and surtax the Government are taking. When I was in the Treasury there was a Working Party which looked at the reform of income tax and surtax structure, and which would clearly consider, amongst other things, the amalgamation of the two. This review is obviously still proceeding and, indeed, the Financial Secretary said in answer to a Question recently that this was being considered.

It seems to me likely, or desirable at any rate, that at the end of this review we should abolish surtax under that name and proceed to have a more logical system of income tax rising in a series of steps without any special surtax structure. Whatever happens to the rate of surtax, clearly this is a logical and sensible arrangement. If the two are unified, clearly the Committee's recommendation would automatically take effect.

The other particular recommendation to which I refer concerns the promotion structure for tax officers (higher grade).

I have already referred to the wastage rate. I was disturbed when I looked into this myself to find how slow the promotion rate was. At present, as the Committee explained in paragraph 39 of its Report, these executive officers who cannot join before 18 must wait six years for modified training and must then have been basic grade inspectors for four years before they can be selected for final training. The Committee recommends that the six-year and four-year periods should be reduced. I think this is a vitally important recommendation, and I am not entirely clear what the Revenue's answer to this is.

The Revenue says that there is a practical obstacle to reducing the six-year period because of the limited competition which requires four years' service in the grade before it can be attempted. I am not sure how many people can he promoted through this limited, competition. Nor am I quite sure what the new proposals of the Board are. But of one thing I am convinced; whatever the practical obstacles, they must be swept away. This 10-year period is far too long for any bright youngster entering as a tax officer (higher grade). It means a loss of potential inspectors and of executive officers. Many with gumption and intelligence will simply not wait that long. Why should they? Once they have acquired a reasonable degree of knowledge, they are worth their weight in gold to accountants' offices. In one of the tax offices I visited, the district inspector viewed with the greatest of regret the number of good men and women he had lost to accountants' firms. It may well be that one cannot avoid accountants offering a higher salary—at present they can do, and they do so. But the long delay, in any event, has a dispiriting effect and is bound to lose a good number of men and women who are badly needed. Unless we make a change, we shall continue to subsidise the accountants' profession, or at any rate, accountants' offices, with recruits trained at the Revenue's expense.

I do not wish to show any disrespect to the Committee by not referring to all the other recommendations at the end of its Report. Many of them, as I said, have been accepted in any case.

I want to end by turning to the call for a new national inquiry. I am not entirely surprised by this recommendation, because in effect what the Committee said was, "All our recommendations may marginally improve the position in the Revenue, but what is basically wrong is the complication of our tax system. We cannot solve our main problems until we have a better system." This recommendation was, in a sense, a cry of despair.

Our tax system was last examined in detail by the Radcliffe Commission, and I do not, with respect to the Committee, feel that a further Royal Commission at the moment is the answer to the Committee's prayers. Nor do I expect, for that matter, any dramatic results to come from the group of the Inland Revenue professional and business experts who are consulting on the reforms of our present tax structure. The official answer certainly refers to this group as if it were some sort of alternative to the national inquiry. But while I welcome the existence of this group, I cannot see, and I am sure they themselves cannot see, any splendid non-controversial, simple, all-embracing recommendations for refrom emerging at the end.

There are certainly ways in which considerable simplification and improvement can be achieved. As I have said, complexity inevitably arises from pressure for exemptions in favour of deserving categories or causes which in due course have to be further modified and remodified. For example, we have the exemptions in favour of house buyers. We wish to encourage house ownership, a worthy cause. Immediately, anomaly arises in that those who are in any event buying a valuable capital asset have relief in respect of what they pay in the process of acquisition, while those who do not have the benefit of the asset but who are paying the equivalent of mortgage payments through rent have no relief. A new system is introduced, or promised, for rent relief, which is to extend to private tenants as well as to council house tenants, but this will be means-tested, and there will be no help for those higher up the income scale, whereas the mortgage relief goes to all, irrespective of income. Clearly, there is here an element of anomaly and injustice.

Further to encourage saving, we have over the years built up a most elaborate and complicated structure of reliefs in respect of various kinds of insurance policies. I need not go into detail, but one could point here again to several anomalies which have arisen over the years in connection with savings.

It would be better, simpler, and, I suspect, in the long run more just, to sweep away all this structure of exemptions, saving about £800 million or whatever it is, and reduce income tax by the equivalent of 2s. in the £. This would bring about an enormous saving in administration time, simplify the tax system, and broaden the base of the tax structure—lowering the height of the building, so to speak, without having a regressive effect. If one started with a tabula rasa, this would, I believe, be a much more sensible and simpler way to proceed. However, since millions of people have undertaken commitments which would be adversely affected, and since a whole business has been built up on the present base of tax concessions in insurance, it would be such a drastic reform that most would shy away from it. Indeed, I doubt that we can look for this kind of drastic solution.

The only alternative is the most painstaking careful analysis of various aspects of our tax system. The real trouble, it seems to me, is that there is not sufficient discussion and study of taxation outside Somerset House. There are a few studies scattered throughout the universities, with one or two professors taking an interest in a special branch of tax, and in some areas, for instance, at York University, there is perhaps a more concentrated investigation than one finds anywhere else. But by and large we do not have the number or quality of students or the systematic research into different fiscal systems which there are, say, in Canada or the United States.

Neither do we have any means whereby experts in different disciplines—expert sociologists, for example, as well as economists—are brought together with expert administrators and professional men to ensure that the suggestions for tax reform can work in practice. I fully endorse the evidence on this point given by Professor Wheatcroft to the Select Committee on Procedure when it was looking into the question of a Select Committee on Taxation. At another time, I shall return to that subject.

I have no doubt that, to some extent, the widespread dissatisfaction with our tax system and part of the root cause of the administrative problem facing the Revenue should be attributed to the lack of sufficient expertise outside Somerset House on which tax reformers can draw. Without it, whatever the long-term plans of the Revenue itself, Governments are bound to press a series of ad hoc measures which prevent the evolution of our tax system as a more logical and coherent whole.

Although I am in no way responsible for it, I hope that the Report of the Estimates Committee will commend itself to the House, and I know that all right hon. and hon. Members will be duly grateful to the Committee for its labours.

3.55 p.m.

Mr. Ray Mawby (Totnes)

As one of the members of the Committee which carried out this investigation, I wish to say at the outset how much I agree with many of the observations falling from the hon. and learned Member for Lincoln (Mr. Taverne). All of us on the Committee were very impressed by the standards maintained throughout by the Inland Revenue and by the sense of dedication shown by everyone working in the Department. I agree with what the hon. and learned Gentleman said about the state of some of the premises in which these people are expected to work, and I echo his plea. There ought to be proper attention paid to this side of the matter in order to ensure that the premises are in a good state so that those working in the Revenue are able to enjoy the same sort of working conditions as are enjoyed by anyone doing a similar job in commerce or industry.

We felt that there were many reasons for the wastage of staff, but one of the main reasons—again, this echoes what was said by the hon. and learned Gentleman—is the long period which a bright young man may have to wait for promotion, a period which he may well regard as a little too long so that he is attracted away to accountancy, to banking, and so forth. We felt that this problem was so serious that we should make a recommendation about it.

We felt that the system of surtax was based on conditions applying many years ago, and, for my part—I cannot speak for the rest of the Committee—I thought that the reasons given for not bringing surtax into the general tax pattern were very weak. In my view, it is now time that we created a situation in which we had a general tax system, with surtax no longer treated as a separate body of tax.

Mr. Ted Leadbitter (The Hartlepools)

The hon. Gentleman will recall that when we discussed this matter at some length, it was emphasised that the same recommendation had been made in the Report of the Estimates Committee on the Inland Revenue in 1961. Some years had passed since there had been that call for a review, and at this point we began to feel a little impatient with the excuses made for keeping the system as it is.

Mr. Mawby

The hon. Gentleman is right. We were concerned that, apparently, the Inland Revenue had ignored the recommendations in an earlier Report and seemed to be concentrating, I thought, over much on the fact that it was committed to purchase a very expensive computer for the surtax centre, the life of which would be ten years, I think. We did not feel that this was a particularly good reason for again putting off a recommendation made as long ago as 1961, and I very much hope that the matter will be taken up afresh.

The hon. and learned Member for Lincoln suggested that there ought to be a closer review of the whole question of the tax structure, administration, and so on. In this respect, we are as an Estimates Committee in an extremely difficult position in that we cannot put in our recommendations anything which would conflict with the will of the House. While we may have felt—I certainly did—that the impact of many sudden changes in taxation had been a major cause of problems in the Inland Revenue, we could not as a Committee make a recommendation along those lines, for we should he going completely wrong if we commented in that way upon a decision which had been taken by the Government and subsequently passed by the House in a Finance Act. We had to be careful, therefore, in spelling out the ways in which we felt that some changes could be made.

I was impressed by the tremendous reaction there is upon the whole staff of the Inland Revenue if Parliament suddenly decides in a Finance Bill on two or three major changes in taxation. This is something which we could not say in our Report, but we now have the opportunity of saying it in the House. We should learn the lesson and not seek to make a number of violent changes in the tax structure in one go because if we do, as surely as night follows day, we throw great difficulties on the staff of the Inland Revenue in trying to deal with the tremendous increase in work it inevitably causes.

I merely wanted to make these few points and to say that I am glad that the Opposition chose the Report for debate. I hope that the general recommendations of the Report commend themselves to the House.

4.0 p.m.

Mr. George Wallace (Norwich, North)

I too, served on the Sub-Committee and I must say that when my colleagues and I were given this subject for investigation we were a little perturbed and did not look forward to it. But when we came to investigate we found the subject of tremendous fascination and it was well worth going around the country meeting the staff, listening to the evidence and seeing the conditions under which the staff work.

There is not the slightest doubt by the Sub-Committee that the Inland Revenue is under-strength and overworked and that the great majority of the staff work in grimy and depressing surroundings. That situation affects even the taxpayers. For instance, there are complaints of delay in the repayment of tax refunds—some of them lasting many months—which must cause a great deal of hardship to quite a number of people. But it is not the fault of the Inland Revenue officials. They have too much to do and, as a result, the taxpayers suffer. It is also no fault of the staff that investigations into tax evasions are held up or are interfered with because there are simply not enough investigating staff to get on with the job. In that aspect alone, if the situation were adjusted so that there were more staff and better flexibility of promotion, the Treasury and the country as a whole would benefit, because a great deal of the tax being avoided at the moment would be recovered.

I agree with the hon. Member for Totnes (Mr. Mawby) that the wastage of staff to commercial undertakings is very serious. Why do they go? The answer is simple. These are highly trained and specialised people and they are attracted to private concerns because those concerns can pay a far higher salary than they can get in the Inland Revenue. The answer is that there must be some revision of salaries.

As we all are, I am for simplification of taxation. But we must face the fact, as the hon. Gentleman pointed out, that the very operation of simplifying taxation will, for a period, throw a greater burden of work on the Inland Revenue. I do not know whether the Chancellor of the Exchequer did any service to the Opposition in doing so, but he certainly gave some degree of service to the Inland Revenue by issuing notice of a reduction of 6d. in the standard rate of income tax next year. That may assist the Inland Revenue. But even if the Government ease off, at least for a period of time, coping with that easing off takes up more time of the Inland Revenue. It sounds ridiculous, but it is so.

The Sub-Committee visited East Kilbride and saw the computer centre there. After what we had seen in other income tax offices we thought that the staff conditions at East Kilbride showed a fantastic improvement. The staff there may not agree that their restaurant serves particularly good meals, but I thought that the food was marvellous compared with what hon. Members get in this House. They work in light, airy offices, almost hygienic to a fault. It was a revelation to us. That centre is coping with practically all the P.A.Y.E. in Scotland.

In the computer room we saw the machinery in operation—machinery which can be used for other public services and Government Departments. We were told that the extension of computer centres in the Inland Revenue would probably save about 6,000 staff. That does not mean any reduction or sacking of staff. It means that the staff will be able to begin to cope with the work involved because the computer system does not need so many people to operate it.

But I want to offer a word of warning about computers. We had a rather terrible incident during the investigation. The Chairman of our Sub-Committee was that well-known figure Sir Eric Errington, the former hon. Member for Aldershot. Sir Eric never gave the impression of having an eagle eye, but his appearance was deceptive. We were going through the various stages of the computer's work and at the final stage Sir Eric pounced. He spotted a single tax P.A.Y.E. form beautifully made out but with no name and address at the top. He asked why this form was in the computer and it had to go all the way back. The incident showed that while one must have computers one still needs the human element to feed in such simple things as names and addresses. I believe that the computer centres will ease staff shortage and give better conditions.

I gladly endorse what has been said about the overcrowded, dusty, dirty and depressing conditions under which a great many of these highly skilled and trained staff have to work. I went to the Norwich office, which was near the Cathedral, not in the course of the Sub-Committee's investigations, but as part of my constituency work. The Deputy Chief Inspector had to be at the door to meet me because, he said—quite seriously, for it was not a joke—"I am afraid that you will get lost on the way to find my office." It was a terribly crowded, Dickensian place, and I am glad to say that within the last few weeks the Inland Revenue in Norwich has moved to ideal modern offices.

There is another aspect to which both the public and the House must pay attention. One of the obstacles, though perhaps minor, to recruitment is the social standing of a tax inspector. For many years the tax inspector has been a music-hall joke, and even when he moves around in his social activities outside his work there is a degree of taint in his being a tax inspector. This must be tackled. We must raise the prestige of the Inland Revenue staff. This is not a joke. It is a very serious matter and it is affecting recruitment.

Again, it is all very well to talk about getting more staff and improving premises, but salaries and conditions must be re-adjusted. They must be improved considerably in order to attract recruits and prevent wastage. Promotion must be more rapid and flexible. During our investigations, we saw many bright young men and women worthy of pro- motion but held back by the fact that a certain period of time has to elapse.

In conclusion, I should like to pay tribute to the staff. Wherever we went, they were doing their best under difficult circumstances. They deserve more than they are getting at present, from the public and from this House. This serious situation has to be tackled and tackled from the human as well as the mechanical angle.

4.11 p.m.

Mr. J. Bruce-Gardyne (South Angus)

Listening to the hon. Member for Norwich, North (Mr. Wallace) and to his hon. and learned Friend the Member for Lincoln (Mr. Taverne), I could not help feeling some doubt about the direct co-relation which they seemed to be making between the condition of premises in which the Inland Revenue is required to work and the service which it offers to the public. I shall be principally concerned this afternoon with East Kilbride, which, as the hon. Gentleman said, is indeed a model of premises for the Inland Revenue to operate in. But alas, the service which it provides to the public in Scotland leaves a good deal to be desired, as I hope to show.

Before coming to that aspect of the matter, I shall just comment briefly on the remarks of the Financial Secretary. I join my hon. Friend the Member for Totnes (Mr. Mawby) in congratulating the Opposition for choosing this subject this afternoon. I do not know whether one is to attribute this to courage, cheek or a sense of contrition. Having listened to the Financial Secretary, I am afraid it is clearly not the last mentioned.

The Financial Secretary to the Treasury (Mr. Patrick Jenkin)

I must protest to my hon. Friend. I have not yet said a word in the debate. I hope he will excuse me.

Mr. Bruce-Gardyne

I was not aware that I referred to my hon. Friend. If I did, it was entirely a slip of the tongue, and I apologise to my hon. Friend.

The report is one long condemnation of the conduct of our tax affairs by the last Government. My hon. Friend the Member for Totnes said that it was not for the Committee to pass comment on legislation which had been approved by Parliament. That is true, but I am glad to see in paragraph 74 the Committee made not a bad bash at it. It said: Your Committee … are obliged to recognise that the fundamental cause of the Inland Revenue's present plight is the growth in tax legislation over the last few years. This is the fruit of Government policy which is not for Your Committee to criticise. Fortunately we do not have to be so inhibited in the House. Indeed, if we look at paragraphs 24, 27, 29 and 36—I do not intend to read them; hon. Members obviously have them—time after time we come down to the fact that the present serious problems and conditions of the Inland Revenue are the direct consequence of the vacuous, ill-prepared, ill-considered and ill-digested tax legislation and tax changes introduced by the previous Government.

As the burden of taxation has been enormously increased and has gummed up the works of the Inland Revenue system, so the need for that system by the individual taxpayer has inevitably increased. In other words, the demand for the service has grown as the tax burden has grown, and the growth in the tax burden has ensured that the service provided will suffer accordingly.

Mr. Dick Douglas (Clackmannan and East Stirlingshire)

Would the hon. Gentleman not also concede that the demand by the public for greater services from the public sector as a whole has resulted in the need to increase tax revenue overall? Both go together, and there is no point in the hon. Gentleman speaking about one without taking the other into consideration.

Mr. Bruce-Gardyne

I would not concede that. But I should be going rather wide of the subject if I followed that line.

As a result of the ill-considered tax changes of the last Government, a very serious situation has been produced in the Inland Revenue. The hon. and learned Member for Lincoln trotted out the old favourite that one cannot have simplicity and equity in the tax system. I do not entirely disagree with that, but what is clear to me is that the higher the levels of taxation the more complexity is needed to provide equity, and as we reduce the levels of taxation so simplicity is more easily reconciled with equity. That is the direction in which, I trust, we will move.

In general, the problems which have afflicted the Inland Revenue have been particularly acute in so far as the service offered to the taxpayer in Scotland is concerned. I intend to devote my remarks mainly to the position of the Inland Revenue centre No. 1 at East Kilbride. I make no apology for doing this, because the Estimates Committee points out that the Inland Revenue Centre at East Kilbride is, in a sense, the prototype, the first one. Therefore, what has happened in East Kilbride, and what, alas, is still happening is of general and broader relevance, because our experiences with East Kilbride are experiences which hon. Members on both sides of the House representing English constituencies may, if we are not careful, have to face when their local "East Kilbride" is established.

In the four or five years during which I represented my constituency before East Kilbride, as one might say, came on stream, I cannot recall one single case where a constituent of mine was unable to obtain redress of errors and adequate service from the taxation office, which at that time was the local P.A.Y.E. office in Dundee. I can recall numerous cases when constituents of mine—

Mr. Douglas

Dreadful conditions.

Mr. Brute-Gardyne

We will come on to the question of conditions in a moment. I can recall numerous occasions when constituents of mine came to me to complain that they were being taxed out of existence. That was a direct consequence of the tax legislation passed by hon. and right hon. Gentlemen opposite. I had to explain to constituents that, alas, there was no redress to that, except by returning a Conservative Government. We are beginning now to see that redress.

The background is that in my part of Scotland we had an excellent service from the Inland Revenue prior to East Kilbride. Since then, I regret to say that there has been a fairly horrific change in the situation. So far as I can judge from what I have heard from my hon Friends representing Scottish constituencies, and hon. Gentlemen opposite, my experience with my constituency has been pretty well typical of what has been happening in most constituencies in Scotland.

Mr. Tam Dalyell (West Lothian)

Would the hon. Gentleman kindly desist from associating his remarks about East Kilbride with hon. Members on this side of the House. I for one have had a very different experience, and one of helpfulness. Let him speak for himself and not us.

Mr. Bruce-Gardyne

If the hon. Gentleman has the opportunity to catch Mr. Speaker's eye, he will explain what his experience has been. I know, from conversations with other hon. Members and hon. Gentlemen on the opposite side of the House, that my experience in my constituency has been by no means unique, but in fact typical.

I can best describe what has been happening by mentioning one or two of the many cases drawn to my attention in the past eighteen months.

The first case concerns a lady who retired in October, 1968, In January, 1969, she forwarded her P.45 to East Kilbride so that her coding could be adjusted and she could receive a rebate. She heard nothing. She wrote to inquire what was happening and received neither reply nor acknowledgment. Over the next 10 months, she wrote four times, again receiving no acknowledgment. Finally, she saw me, and I managed to get an explanation and an apology for her, together with her rebate.

Another case concerns a gentleman who became redundant in March of this year and started to draw unemployment benefit. He was also in receipt of a pension from the Forestry Commission. From the beginning of April, he suddenly found that the tax deducted from his pension had increased since he became redundant. He wrote to the Cardiff tax office which handles Forestry Commission tax and got no reply. He went to the office in Dundee on three occasions without making any progress. On his fourth visit, the Dundee office telephoned Cardiff and East Kilbride on his behalf and assured him that matters would be put right. All that happened was that in August, the next month, his deductions were further increased. Again matters were put right only when I intervened.

The third case concerned a man drawing a retirement pension and a local authority pension since his retirement in 1968. Until April of this year, tax was deducted at about £6 a month. Suddenly, without warning, his deductions jumped to £20. He wrote to East Kilbride and, after a couple of months, received an assurance that his coding was wrong and that it would be readjusted. Nothing was done. In August, he saw me. Once again, only at that stage was the matter put right.

The pièce de résistance concerns a constituent of mine who suddenly found his marriage annulled and his three children reduced to bastardy overnight. Suddenly, without reason and without explanation, he was recoded as a bachelor. Once again he received neither explanation nor answer when he wrote to East Kilbride.

Mr. Dalyell

Cheap.

Mr. Bruce-Gardyne

It is no good the hon. Member for West Lothian (Mr. Dalyell) saying "Cheap". These are facts. They are examples drawn at random from a file which I have, and even that is only part of my long correspondence over these continuous cases.

Mr. Dalyell

Will the hon. Gentleman give way?

Mr. Bruce-Gardyne

I have already given way once—

Mr. Dalyell

Has the hon. Gentleman ever bothered to go to East Kilbride?

Mr. Bruce-Gardyne

If the hon. Gentleman will be patient, in a few moments I will describe my visit to East Kilbride.

In almost every case to come to my attention, there have been certain features in common. First, in no case, with one possible exception, was it a matter of computer error. When the hon. and learned Member for Lincoln was Financial Secretary—my hon. Friend will note that I have it right this time—he told us that this was a matter of teething troubles with the computer. But it is not. With one possible exception, in no case brought to my attention has the computer been at fault. In every instance it has been a matter of human error.

Secondly, even when investigations have been instituted as a result of taxpayers writing in to the centre, because the taxpayers' letters have not been acknowledged, they have been totally unaware of what was happening and naturally were convinced that nothing was happening.

Thirdly, where complaints were attended to and sorted out, the time lag between the first representations and the settlement of complaints was quite excessive in my view.

At this point, I must express one word of thanks to my hon. Friend the present Financial Secretary. He inherited the chaos and confusion of our tax laws from the party opposite. Since my hon. Friend took up his present appointment. I have found that he has been able to deal with every case that I have had to refer to him, and has settled the grievances of taxpayers with much greater expedition than was shown by right hon. and hon. Gentlemen opposite.

My hon. Friend has also taken a great interest in the workings of the centre and the problems that have arisen there. He has visited the East Kilbridge Centre, and he was good enough to arrange for me to visit it a month ago. I found my visit extremely interesting. What struck me above all was that in the so-called "allocation unit", where taxpayers' P.A.Y.E. affairs are handled at what might be called desk level, there was hardly any evidence of a tax officer beyond his or her teens. One supervisor in charge of a group of those tax officers to whom I spoke was, I imagine, in about his 21st year. This reflects what is undoubtedly the biggest problem that the centre faces, and hon. Members will note that the Report of the Estimates Committee has a considerable bearing upon it. It is the problem of wastage among young men and women still barely out of the initial training period.

My hon. Friend has assured me that there is evidence of a reduction in the number of complaints about East Kilbride. Certainly when I was there, I was shown evidence on which that assessment is based. However, in my experience there is little sign yet of any improvement. The rate of complaints seems to be running more or less on a plateau: it has not increased in recent months but certainly it has not reduced.

My hon. Friend also pointed out to me that the number of complaints which I and other hon. Members refer to the Treasury is infinitesimal compared with the total number of cases handled by East Kilbride. But, against that, I think that it is fair to point out that the number of complaints which an hon. Member receives is likely to be a small proportion of the number which exist and which are not referred to a Member of Parliament.

When I visited East Kilbride, the centre was obviously feeling to some extent that it was the victim of a bad Press. I would not dispute that, although the majority of people who complain to me seem unaware that others faced similar difficulties. That suggests that their cases have not been brought up as a result of what has been said in the Press.

It was suggested to me at East Kilbride that, while the service offered to an area such as mine is by no means as satisfactory at present as the service that we received previously from the tax office in Dundee, in other areas such as Glasgow where there was an acute shortage of tax officers before the change to East Kilbride the service offered to taxpayers may be better. In other words, my area is the victim of averaging, from which people in other parts of Scotland are benefiting. There may be something in that, but it is small consolation to my constituents.

What is to be done about the situation? When I was at East Kilbride I discussed two possibilities which I thought might help. One was that we should improve the arrangements for taxpayers to find out about their P.A.Y.E. affairs at "local access" points. I get the impression that there is too much of a tendency for the so called "access points" at local offices to greet a taxpayer with the comment, "I am afraid that it is all handled at East Kilbride. You had better write to them, or we will. We can do nothing for you." A more personal approach to the individual taxpayer could help. However, I gathered at East Kilbride that the Inland Revenue is looking into this possibility at present. It may be that my hon. Friend will be able to comment on it when he replies to the debate.

It seemed to me that there would be something to be said for some form of "fail safe" device whereby, for instance, all individual complaints from taxpayers would be trapped to one side as they came in and followed through by an individual officer with, perhaps, a special section to see that they were dealt with expeditiously and the taxpayer informed accordingly. I have received a letter from my hon. Friend in which he says that this is an idea which: The Revenue will certainly consider.… But they do see serious practical difficulties in its implementation.… The difficult task of examining a half ton of mail every day to isolate individual complaints would, I think, only contribute to further delay in getting the correspondence to the appropriate staff to take effective action. I can see the dangers of this, but bearing in mind that, unlike other communications to the centre, the complaint from the individual taxpayer is nearly always handwritten, this should not present insurmountable problems. I am sure that something like that is needed, because we have to ensure that taxpayers receice acknowledgments of letters they have sent.

Beyond that, some of the recommendations of the Estimates Committee's Report should assist the staffing situation, which is crucial. I agree that we have to increase the competitive attractions of the Inland Revenue as against accountancy and other forms of employment which tempt the semi-trained or trained man away.

The final conclusion, and there cannot be any dispute about it, is that if we want to eliminate the problems which have arisen at East Kilbride, if we want to ensure that they do not occur when establishments such as East Kilbride are set up in other parts of the country, the vital necessity is to reduce the burden of taxation overall and I am delighted that my hon. and right hon. Friends have made a start on this.

4.33 p.m.

Mr. Robert Sheldon (Ashton-under-Lyne)

The hon. Member for South Angus (Mr. Bruce-Gardyne) talked about the report as being one long condemnation of the taxation Statutes of the last Parliament. He produced singularly little evidence for this. Large reforms which have been carried through and which may be carried through will always produce that kind of reaction from the Inland Revenue Department.

Mr. Bruce-Gardyne

I am sorry to interrupt the hon. Gentleman so soon, but he says that I have produced singularly little evidence. This was because I chose not to read out the relevant paragraphs from the Report. If he looks at paragraphs 24, 27, 29 and 36, he will find that time and again these comments are made.

Mr. Sheldon

I do not accept that that is evidence which should be adduced. This is what I question. In 1969, four years after the introduction of those reforms, one would not expect that, however indigestible the original Bills might have been, there had been insufficient time for the Inland Revenue to have made decisions as to how they should be treated. If there is any reform which requires more than four or five years to be fully digested, then future Chancellors will be very hard put to it to introduce the massive reforms to which they at present dedicated.

My only reason for speaking is to counter some of the views put forward so far which suggest that reform is virtually impossible because the Inland Revenue cannot undertake it. I must oppose this view vigorously. The Estimates Committees, composed of admirable men looking at the problem in the best way they could, failed to grasp some important matters and failed to put some of the direct questions that should have been put before it was prepared to accept at face value a person who, when asked: "Are you overworked?" replied: "Yes." This is too easy

Before we accept that any Department of State is overworked and therefore cannot undertake the kind of reforms that any Parliament or any Administration might wish to pursue, we have to ensure that they come up with much stronger evidence than that, because the implications are enormous. If this goes uncorrected, this debate and this Report will always be quoted against any kind of reform of any size which might be suggested. I accept that the Estimates Committee has done some splendid work. It is under-staffed. The way in which it carries out its duties means that it tends to bring up the main issues rather than to dispose of them. I think, for example, of the one dealing with Far Eastern expenditure, where the issues of the expense of carrying out a Far Eastern commitment by the defence forces of the Government were inadequately examined but at least provided the starting point for the argument.

This Report in the same way does not end the argument, it provides a starting point. It provides the starting point for more inquiry and more examination. Per-haps its most important effect is that it is able to stimulate others to find some way of producing a situation in the Inland Revenue Department whereby further tax reforms can be introduced from time to time. If the argument is that by 1971, the date of the next Budget, no reforms are possible because of the reforms of six years ago, what is our hope for any kind of taxation reform of the kind we must demand?

I accept that the reforms of 1965 produced some heavy burdens upon the Department, but I fail to be impressed by the seriousness of this. Of course from time to time every Department of State finds itself with major issues of reform which produce a strain which has to work its way through. To go from there and say that because of that we must never introduce that kind of legislation, whether it is good or bad is immaterial, would be wrong. This time should be more than enough for any legislation to work its way through. If it was bad they have had five years to make it good. We know the crying need for the tax reforms. We know the need to integrate surtax and income tax to get the shape of the tax curve correct, not this botched-up business we have at present, so that when a Chancellor wants to reduce taxation or even on occasions to increase it, he has to do it in this ham-fisted way of so many pence on the standard rate rather than adjusting the curve to allow for certain exemptions for certain people and producing revenue from those best able to afford it.

So we have the monstrosity of a situation when the Chancellor came and cut the standard rate by 6d. and said that there was no other way of producing these tax changes, reducing these taxes, than by giving very large reliefs to those best off and the greatest reliefs of all to those who had unearned income. If we are serious about wanting to produce a taxation system which can be flexible and meet the requirements of various Chancellors we will need to produce the kind of reform which, if we accept this Fifth Report, will be impossible because of the strains put upon the Department. I want to quote from one or two parts of the Report to illustrate what I have been saying.

Paragraph 51 says: In the words of the Chief Inspector they"— that is the Department— 'take every [graduate] who is qualified and who will come' ". I do not find this so appalling. I do not believe that it is an illustration of the serious shortage of tax inspectors that the Department will take everybody who is qualified. I know plenty of organisations which will take everybody, so long as he is qualified. It depends on the qualification. We have had no evidence of any dilution of expertise among inspectors of taxes, and I will always pay tribute to the standard and ability of those who come forward to these posts. This is not evidence of an extreme shortage.

Question 94 was: Having had difficulty in recruitment do you have a high turnover? Is a tax inspector an attractive person to industry? The answer was: Yes, but we do not have as yet, fortunately, a high turnover. There is no high turnover—troubles in recruitment and difficulties in wastage on recruitment—but no high turnover once people have become inspectors. That is not by any means to say that the situation is perfect, but it is not as disastrous as has been stated, nor as disastrous as might be the impression obtained from a casual reading of the Report.

Paragraph 28 refers to the shortage of trained staff at tax officer level. There is a reference to Question 91 which says: … we are slightly short in the number of tax officers". That is very different from saying that there is a shortage of trained staff at tax officer level.

I accept that these extracts do not give all the nuances, but my reading of the Report shows that there is insufficient evidence of any overload on the Inland Revenue, and I find no detailed questioning to establish evidence of an overload, for instance, about the amount of overtime worked, or reductions in standards of personnel, and so on. Those were the questions which should have been asked before it was accepted that there was an overload so great that tax reform in the future would not be possible. These are serious matters, because any Government wanting to undertake tax reform will always be met by the practical obstacles and the Report is a bible of practical obstacles to the kind of reform in which we expect the Government to be engaged.

Of course there is room for better recruitment, better pay scales and better opportunities and of course we need more of these people, but we should not have been given a picture of the tax system breaking down, or anything of that sort. We are dealing with a long-term problem which must be fitted in. We must insist that the Report is not regarded as a major barrier to tax reform and in this debate we must ensure that it is not so considered.

4.43 p.m.

Rear-Admiral Morgan-Giles (Winchester)

I join with those hon. Members who have already paid tribute to those who gave evidence to the Select Committee, of which I was a member. However, I am bound to say that I was not a very happy member of the Committee, because I felt that it failed almost completely to see the wood for the trees. It took a great deal of detailed evidence, but it produced a Report of 313 pages without any reference to what I regard as the main problem of the Inland Revenue, and one of the main problems of the country, the fantastic complication of our tax system.

The predicament of the Inland Revenue—the tremendous number of hours which people have to work, the difficulties in recruiting, fully ventilated in the Report—is due more than anything else to this fantastic complication. The system bears hard not only on those in the Inland Revenue, but on businesses as a whole, particularly on small businesses and on farmers like so many of my constituents who are practical men with hands wet from milking the cow and who are then faced with endless paper work involved in the present tax system.

At the other end of the scale, tycoons, who should be increasing the prosperity and profitability of the country, spend a great deal of their time in their mahogany-panelled boardrooms planning schemes of tax avoidance—not tax evasion, I am not accusing them of that—weaving spells which other tax people later will try to unravel.

Who really understands his own tax returns? Who can put his hand on his heart and say that he understands everything about them? Probably only the people employed by the Inland Revenue can do so, and their complaint is that they do not get anough money and therefore they probably do not have very large tax returns.

This complication from which we suffer is a self-inflicted wound. Perhaps as a civilian I should no longer regard a self-inflicted wound as a military offence, but even for a civilian it is still extreme folly, and the country has inflicted upon itself massive damage by the complications which we have allowed to crop up through the years. The Treasury and the House in unholy matrimony are the only people who can drastically improve matters, and my hon. Friend the Financial Secretary now has a tremendous opportunity to go about this task and to recognise that the complications of our tax system are Gilbertian and must be drastically streamlined.

4.48 p.m.

Mr. Tam Dalyell (West Lothian)

It is easy to talk about Gilbertian complications, but when I made a similar remark to the former Prime Minister, Mr. Macmillan, he sent me to see the Chief Parliamentary Draftsman, who, in an hour and a half, was able to take this attitude to pieces simply by explaining that the tax authorities have to deal not only with the bulk of us, who are fairly honest in our tax returns, but with those who set about getting round the Revenue and who employ income tax evasion lawyers, a much over-paid profession.

Rear-Admiral Morgan-Giles

The hon. Gentleman will understand the difference which I made between tax avoidance and tax evasion, the one legal and the other illegal.

Mr. Dalyell

I should like first to say something about the general issues, and then continue a subject raised by the hon. Member for South Angus (Mr. Bruce-Gardyne), with whom I was in total disagreement in much of what he said about East Kilbride. As the Financial Secretary will remember, in a previous debate I paid tribute to East Kilbride, and in doing so again I should like to discuss some of the difficulties in some detail, because I agree at least with the hon. Member for South Angus that this is a pioneering project and East Kilbride has a certain relevance outside Scotland.

Since biblical times, the tax gatherer has been unpopular. In spite of the powerful remarks of my hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), I should have thought that in the offices in Scotland—and I speak with no knowledge of the North or the South of England—many tax offices were indeed understaffed and overworked, as the Committee said.

However, I am bound to say, without being rude to any of my colleagues, that I would go some way with my hon. Friend the Member for Ashton-under-Lyne, who was brave enough to start this line of argument. If he had not spoken, perhaps I would not have remarked that I, too, thought that there was a good deal of sloppy and superfluous questioning by our colleagues who served on the Estimates Committee. I wondered why some questions were asked, at inordinate length, and what the questioner hoped to get out of the witnesses. My hon. Friend the Member for Ashton-under-Lyne has given us some thought for reflecting on our own questioning in Select Committees.

I echo much of what has been said by my hon. and learned Friend the Member for Lincoln about the argument of simplicity versus equity and merely reflect that his former chief, my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), sent me to see Sir Arnold France when I raised certain issues of equity and simplicity. In any tax reforms more attention should be paid to simplicity and slightly less to equity. However, that is much easier said than done. As my hon. and learned Friend the Member for Lincoln said, and as the Report points out, the intellectual and personal qualities needed of those at the top of the Inland Revenue are very considerable. I echo the plea for substantially more pay to be given to those who do this extremely rigorous job.

I now wish to get down to detail. The subject of recruitment is raised in paragraph 7 of the observations of the Chancellor of the Exchequer, where it is pointed out that the aim is to recruit at the rate of 100 graduates a year. The issue is not only to recruit them but how to keep them. I refer to the example on which the Treasury has not yet written to me concerning the Scottish Estates Duty Office. The striking fact emerges that, over a ten-year period, of 32 graduates, 13 went to lawyers and insurance offices, seven went to banks, four were declared unsuitable, four went away to get married and only four remained. If this is the sort of picture which obtains throughout Great Britain—and I have no reason to suppose that Scotland is a typical—it is quite serious.

Mr. Patrick Jenkin

I can assure the hon. Gentleman that the Scottish Estate Duty Office faces particular and special problems because of the source of its recruits and the attractiveness of other occupations once they have been trained by the office. I am sorry that the hon. Gentleman has not had a reply. I have a fairly full note of the matter on the basis of which a reply is due to be sent to him. I shall ensure that it reaches him as soon as possible.

Mr. Dalyell

I am not complaining that I have not had a reply. Of course, such highly trained men are lured away by other attractive occupations.

My next point arises out of question No. 1489 dealing with the changes which we might expect as a result of the Report of the Fulton Committee, on which my hon. Friend the Member for Ashton-under-Lyne served. The witness said: I think it would be very difficult, if I may say so, for you in your Report to produce the right answer out of a hat, as it were. This will come with time. It will depend I think very largely on decisions taken arising out of the Fulton Report. It would I think be for the benefit of the House if the Financial Secretary could say how far thinking on the Fulton Report has gone in this respect.

Paragraph 35 of the Report refers to a wastage rate of as much as 50 per cent. I should like to pose a question which may be somewhat esoteric, but some of us wonder whether this profession is intrinsically, by its nature, a young man's job. I can well understand the argument that tax collecting is a job which appeals far more to those who perhaps have passed their thirty-fifth or fourtieth birthday than to young men. I am not sure that it is not deeply true that at one level young men perhaps find that the job is not what it has been made out to be and that they are not intrinsically suited to it, at an early stage in their career.

Thus I wish to refer to paragraph 52 of the Report which deals with the issue of ex-Service recruits. As one who, whatever his other views on defence, has been consistently concerned with Service careers and legitimate career expectations in the Services—and the hon. and gallant Member for Winchester (Rear-Admiral Morgan-Giles) will grant me this—I should like the Treasury to tell us how far its discussions with the Services have gone on how a Service career can be geared to a career in the Inland Revenue.

I am aware of questions Nos. 781 to 784 and the doubts expressed by the witnesses about whether Service personnel were as suitable as one might suppose at first sight for work in the Revenue. But, even accepting these doubts, I should like the Treasury to tell us what further thought it has given to this matter, and to make a suggestion. As one who has visited the Service College at Shrivenham, may I ask whether it would not be sensible for those entering the Services whose career expectations in the modern world might be much shorter than formerly, at an early stage in an officer's career to talk in terms of the career sliding over, so to speak, at the end of his Service time to a fairly senior promotion ladder in the Revenue.

If the Financial Secretary is doubtful about that line of thought, there is the example of France and what the École Polytechnique does for its alumnii. I do not say that Shrivenham should be turned overnight into an École Polytechnique. All I am pointing out is that, as the Estimates Committee said, there are grounds for further investigation into marrying the lines of a Service N.C.O. or Service officer with a proper career in the Revenue. That would be worth following up.

I draw attention to paragraph 17 in the Chancellor's observations: The Board are discussing with the Ministry of Defence arrangements for ensuring that opportunities for a career in the Inspectorate of Taxes are brought to the attention of servicemen who are about to retire". Precisely what is being done about that?

I am glad that the hon. Member for South Angus has returned to the Chamber. Frankly, I think that he has been taking a popular and easy line, in the Scottish Press and today. It is easy to produce a few cases and to say how scandalous they are. But how many of all the cases with which East Kilbride deals are unsatisfactory? Of course, we have our difficulties from time to time, but, since the hon. Member has made the speech which he has made today, I wish to repeat what I said in the debate on the Report of the Public Accounts Committee, namely, that whenever approaches have been made by Members we have received prompt and satisfactory service. Whenever there has been error, I have found East Kilbride remarkably willing to confess it.

What a Member of Parliament asks of a tax department or of a department of the Ministry of Health and Social Security is that if they are wrong they should admit it without too much haggling and not put up tremendous defences to try to prove that they are right. Many of my dealings with East Kilbride have been thoroughly satisfactory. It is tough on the people who work there to go to the Press with the "juicy" cases which receive a great deal of publicity—because the Press, by its nature, always records what looks like the scandalous or awkward case, for which I do not blame it—and does not pay tribute—why should it, because they are not news—to the many cases which have been dealt with promptly and satisfactorily.

I found during my visit to East Kilbride that those responsible could produce considerable evidence that what they wanted to do was not to obtain the maximum amount of tax but to ensure that people were paying the right amount of tax. That was their object, and the top echelon seemed serious about attaining it. It was certainly our impression that at East Kilbride they were working seriously towards this end.

Having said this, and having praised the centre, I have certain specific questions which concern my constituents, and the constituents, I suspect, of my hon. Friend the Member for East Stirlingshire (Mr. Douglas) and others. One is, what the Treasury will do about the whole issue of telephone communications. This arises out of paragraph 29 of the Report. I think a great deal of trouble would be saved if telephoning were somehow made easier. It may be that a free telephone service should be further expanded on the reverse charge system. On the other hand, it could be abused, and I would wish to know from the Department whether there are great signs of abuse, where this has been done, because pioneering schemes really could be improved. Certainly in the "surgeries" which all of us hold one finds that the most bitter criticism made about East Kilbride is that they have to spend a great deal of money in telephoning before they get on to the right person at the centre. Young married couples find difficulty in getting time off if both are working. So on the whole issue of free telephone calls at East Kilbride or anywhere else I should like a statement from the Government this afternoon.

I would like to come on to another question. Certainly I have had uncommonly often at my Saturday "surgeries"—and I gather this is also the experience of some of my hon. Friends—a problem which concerns the unfortunately growing number of separated or divorced wives. The problem, as I see it, is, often, a problem where alimony has been awarded by the court, but although alimony may have been awarded by the court, that alimony is not being paid to the unfortunate lady, and yet she is taxed on the basis of that alimony, which is not in fact paid to her. When I was Parliamentary Private Secretary to my right hon. Friend the Member for Coventry, East (Mr. Crossman), when he was Secretary of State for Social Services, on a number of Ministerial visits to Glasgow and that area I discovered from social security offices the greatly increased rate of separation and of divorce in our country—even in the last three years. Therefore, I think that this issue of alimony and its complications has numerically grown and is becoming almost a national issue. So the question I ask is, what can the Department do to help the woman whom it is charging a tax based on alimony which is not coming through? This may be partly a question for the Home Office and the courts, because there are legal complications, of which I am aware, but with which it would be wrong to take up the time of the House now to discuss at too great length.

Again on a constituency basis, I think all of us have learned that there are problems when changes of employment take place and tax matters are passed from one office to another. I make no complaint, but it does seem that in present cases it has been rather more difficult than it should have been to work out some final assessment—for instance, between East Kilbride and Southampton or between East Kilbride and some of the tax offices in Lancashire. Some people have to spend too long on emergency code numbers. I am wondering whether the Financial Secretary has any reflections on how he could improve interoffice communication. Indeed, this was raised expressly at Question No. 560 about the employers' unit, which, it was stated in evidence, deals with all employer matters including their reports of changes of employment; the employers' unit also includes the tracing group, which is basically an alphabetical index of every taxpayer for whom we have a record. There should be improvements in this.

Another issue is the whole question of privacy. At Questions Nos. 582–586 the Chairman of the Committee put a question which I think should be read out since one cannot otherwise have this recorded in HANSARD. He said: While we are talking about security, there are certain people who take the view that there is a danger in computerisation, that the individual's privacy might be interfered with by people who are able to get information from the computer. We have had a memorandum about this, but I just want to confirm with you that there is no possibility of what I would describe as random access to the computer to obtain information of individuals? To which the answer from the witness from East Kilbride Centre was, "None whatsoever." I would just like to interject, Are we quite sure about this? Because I should like to be convinced that computer records and computers run by the Revenue are used for tax purposes only and for no other kind of information giving. This is a subject which may well come up in private Members' time if my hon. Friend the Member for Birmingham, All Saints (Mr. Brian Walden) or any other hon. Member is enabled to go ahead with a privacy Bill.

I also am a bit concerned about Question No. 584: How is communication arrived at between here and elsewhere? The answer was: The only present communication between the two computer systems is in verifying the taxpayer's national insurance number. This is achieved by an exchange of punched cards.

Mr. Patrick Jenkin

I think the hon. Member has moved on to communication between the Department of Health and Social Security and the Inland Revenue, not that between two Inland Revenue offices.

Mr. Dalyell

Yes.

Mr. Jenkin

The preceding Question I think makes that clear.

Mr. Dalyell

Yes. I am taking this point and it is an inter-related matter and this is precisely the point I am asking about. I am not at all happy about certain information which is gathered by the Revenue being used, for example, by the Department of Health and Social Security—but I say that without any implied criticism of either Department. I should like to ask, as other hon. Members have, about other uses to which the computer can be put, because clearly to quite an extent the computers such as we have seen at East Kilbride could be used for other purposes—for industrial purposes, or for the purpose of private enterprise or public enterprise, or whatever. It is important from the point of view of the taxpayer, and I should like to hear a statement of the Treasury's philosophy on this issue.

I should like very simply to ask about an issue which came to the fore when my right hon. Friend the Member for Sowerby (Mr. Houghton), who is sitting in front of me, was asked by my hon. Friend the Member for Eccles (Mr. Carter-Jones) about how the Treasury organised its dating. My right hon. Friend said, in answer to Question No. 1199: I think claims have been made from time to time that the Chancellor should open his Budget so far as the Inland Revenue Department is concerned in November and not leave it until April. That would be most convenient. It is quite true that the Government have given forewarning to the Revenue of certain tax changes, and equally, as my right hon. Friend the Member for Sowerby, who has unrivalled experience in these matters, pointed out, it would also be helpful if changes in allowances could be announced fairly early, because it means that if changes in allowances are not announced early much work has to be done, time and time again—at least double work has to be done. Talking to those who work in the Inland Revenue, one learns that there is considerable agreement on the importance of the point raised by my right hon. Friend the Member for Sowerby on the issue of allowances in addition to tax changes.

Finally, I would just like to add to the point which has already been made by my hon. and learned Friend the Member for Lincoln (Mr. Taverne) and by my hon. Friend the Member for Ashton-under-Lyne. All of us who would like seriously to think about tax changes feel very inhibited by the present set up. I do not really expect the Conservative Government would go out of their way to facilitate the Opposition when it comes to introducing a wealth tax, but those of us who think a wealth tax ought to be introduced know perfectly well that in a number of areas in our country it would be almost physically impossible because of the situation of the Inland Revenue at the present time. Apart from the party politics of the matter, there is a really serious issue involved, and that is to what extent should social measures in the field of taxation be inhibited, or, indeed, thrown out, by the fact that there is not the machinery to put them through.

So I would sit down simply by adding my voice to the voices of my hon. and learned Friend the Member for Lincoln and my hon. Friend the Member for Ashton-under-Lyne upon the point of principle—leave party politics out of it—they raised.

5.10 p.m.

Mr. Kenneth Baker (St. Marylebone)

I, too, am surprised that the Opposition have chosen this report as a matter for a debate on a Supply Day. The report was published a year ago. The Treasury commented upon it in March of this year, and in the early spring of this year, in the last Parliament, I constantly pressed the then Leader of the House to have a debate on it, to no avail. I am therefore surprised that the Opposition, in opposition time, have decided to debate this subject. I am grateful that they have, but I am surprised.

Mr. Douglas Houghton (Sowerby)

I understand that there is a Standing Order that certain Supply Days are given up by the Opposition expressly for the discussion of reports of the Estimates Committee. This is one of those days.

Mr. Baker

If that is the procedure, I am very glad. None the less, it does not abate my surprise in the least. By being obliged to debate this report the Opposition are laying themselves open to a completely valid charge that the current state of the Inland Revenue is in large part due to the complexity of the tax changes that the Labour Government introduced. Shortly I shall answer directly the point raised by the hon. Member for Ashton-under-Lyne (Mr. Sheldon). The Inland Revenue is in a state bordering upon administrative chaos. It is understaffed, and such staff as there are are over-worked. As the hon. Member for Ashton-under-Lyne said, the depressing conclusion is that no serious measure of tax reform can be considered for two or three years at the earliest.

Mr. Sheldon

Just to get it right—what I said was that if the report were accepted it would be an argument against tax reforms. I did not accept that extreme view.

Mr. Baker

I shall deal with that point in a moment. I do not agree that it is acceptable to the House, or that it should be acceptable to the Government. But a great deal of the complexity arises from the introduction of capital gains tax and corporation tax in 1965—now five years ago. We should not blame the present shadow Home Secretary too much, because many of the changes introduced by his successor have added immeasurably to the work of the Inland Revenue Department. The report showed that the major reason for working overtime in 1968—and I remind the House that overtime is mentioned in the report—was the introduction of the clawback principle in that year. I happen to agree with the clawback principle. Nevertheless, it involved a massive amount of admini- strative work and was a relatively small change. On top of that, in the 1968 Finance Act there was the aggregation of children's income, which involved much detailed work. The party opposite introduced it for political reasons. I do not object to its having done that, but in Committee I objected strongly, as a Conservative, to the proposal, and voted against it. It has involved an immense amount of administrative work.

The 1969 Finance Act introduced the disallowance of interest. I cannot object to the fact that it was introduced for political purposes. Nevertheless, the resultant increase of work this year and next year will be astronomical for the Inland Revenue. Early this year, in the socialist budget, the former Chancellor reduced surtax. It should be remembered that it was the Socialist Party in 1970 that reduced surtax. The way that the then Chancellor chose to do it was, again, immensely complicated and it created several anomalies. For example, a married man with two children, earning £6,000 a year, suddenly moves—for a short period—into a very high marginal tax bracket, where he pays 72 per cent., or 14s 5d. in the £ on every extra £ until suddenly, when he receives £6,400 a year. magically and mysteriously his marginal tax rate falls to 52 per cent., or just over 10s. These are serious anomalies, created by the fiddling and small measures to which we have been subjected in the last three budgets.

Over the centuries it has been the custom for Parliament to report upon the workings of its tax gatherers. One of the most renowned reports was in the 18th century, investigating the scandal that arose in Coventry in 1798 and which became known as the Coventry scandal. The parliamentary report found that the Land Tax Commissioners—the people responsible for gathering taxes—included "journeymen, weavers, scavengers, dealers in dead horseflesh, dealers in cats-meat, paupers on parish relief, two fiddlers and two idiots."

In spite of the staffing difficulties in the Inland Revenue, the quality of staff has steadily improved over the years and is probably as high today as it ever has been. But is is inadequate for the amount of work that we impose upon it, and it is to the credit of the people working in the Inland Revenue that they have been able to cope with the change inflicted upon them.

There is little wonder that in 1968–69 several hundred thousands of hours of overtime had to be worked. Page 259 of the report states that the cost to the country was about £873,000. It is little wonder that there is a 50 per cent, wastage of graduate entries into the service. It is little wonder that every advertisement for a graduate to take on the career of a tax inspector brings in fewer than two applicants. The reason is that those who are contemplating a career in the Inland Revenue feel that they may have to spend their lives dealing with relatively unimportant mental chores, chasing fairly trivial amounts of tax.

I am glad to see that the right hon. Member for Sowerby (Mr. Houghton) agrees because that is the nub of the problem. When an inspector of taxes leaves the Inland Revenue he never appears on the unemployment register. He is snapped up. Unemployed income tax inspectors do not exist. In this respect they are rather like rich young widows. The complexity of our system is such that it is having grave implications upon our national morality. If a rich taxpayer receives £1,000 as a gift he pays no tax on it. If he receives £1,000 by way of capital gains, there is a 30 per cent, tax, and if he receives £1,000 as part of his earned income, the tax rate is 88¾ per cent. It is consequently of great interest to such a person to try to insure that that £1,000 falls into the correct grade.

That is what the taxation system is all about—because it was William Pitt who devised the Schedules on which we still operate. The last Government added Schedule F, but Pitt devised the schedules and the system of grading sources of income from the point of view of the rate of tax they would bear. What happens in a situation of moral laxity? Deep down in the tax jungle individuals suspect the trees; they suspect the undergrowth; they suspect the shadows—and because they cannot see any path they cease to become particular whether they are treading on it. They become hesitant about paying their share of tax because it seems so big, so arbitrary, and so difficult to determine fairly and accurately. That is the present position.

Moral laxity in tax matters is growing, and the permissiveness that has seeped through our society is also seeping into the area of fiscal honesty. It is admitted in the report by the Chief Inspector that because there are fewer inspectors they have to make a much more highly selective choice of issues to pursue and fight. This means that inspectors of tax in the Inland Revenue cannot police all the boundaries between what is right and what is wrong in tax law. If these boundaries cannot be effectively, regularly and consistently policed, it is not fair on the Inland Revenue Department or on the individual tax payers.

What is the answer? I do not believe that the proposals put forward by the Select Committee add up to a coherent answer. There is a proposal to improve recruitment, but recruitment cannot be improved to a service which cannot offer a satisfying career. The proposals say, "Improve the job advertisement, improve the rates of pay and suddenly it will get better." It will not, and we in our heart of hearts appreciate this. Efficiency can only be restored, equity can only be improved and the costs of collection can only be reduced in two ways: first, by reducing the upper rates of taxation and, secondly, by drastically simplifying our tax system. The Government have started on the first. Much of our tax law would become of peripheral interest if, for example, estate duty started on estates of £25,000. Hon. Members opposite may disagree on political grounds—obviously they will—but if the great bulk of estate duty cases are taken out, the administration of estate duty becomes a relatively simple matter.

It would be sensible to exempt from capital gains tax all cumulative transactions up to the value of £1,000 a year. Some people may say that this should be higher. This would do away with a great deal of the detailed dog work in the Inland Revenue Department. I do not want to plead the case for those changes today—the opportunity for doing so is on the Finance Bill—but I do want to plead the case for simplification. Simplification basically depends upon computers. In the next two or three years virtually every area in the country will be computerised—

Mr. Patrick Jenkin

No.

Mr. Baker

It may be delayed a little longer, but I hope when the whole country is computerised for P.A.Y.E. purposes it will be possible to look at other changes in our tax system.

The hon. Member for Totnes (Mr. Mawby) and several hon. Members opposite mentioned the possibility of combining income tax and surtax into one graduated form of tax on incomes. I know the difficulties of unearned income and income from differing sources but, with a will, I am sure this can be done. This rather mild recommendation of the Select Committee had a dusty brush-off from the Treasury, but I feel sure that steps can be taken here.

The jackpot here would be to combine income tax receipts with a great many, though possibly not all, social security payments: to merge welfare benefits into a form of reverse P.A.Y.E., negative income tax or reverse income tax. An interesting article appeared in The Guardian this year written by an ex-tax inspector, Joe Horner, who is turning his hand to free-lance journalism. He called such a system a social dividend scheme, but in essence it is the same sort of arrangement which seeks to resolve the position of, for example, a married man with three children earning £1,500 to £2,000 a year paying to the State through various taxes and contributions about £500 and receiving back from the State in many different ways about £400. We must try to move towards a system which reconciles these two cash transactions between the individual and the State, the money being taken away from him and being given back to him. A P.A.Y.E./social benefit system would be an ideal way of dealing with the detailed proposals which are to be announced for rent allowances.

Mr. Taverne

I do not want to discourage the hon. Member from pursuing this important matter, but I hope he does not for a moment think that this will be a short-term simplification.

Mr. Baker

I agree entirely with the hon. and learned Gentleman that to get to this stage will be a major dislocation and this reverts to the point made by the hon. Member for Ashton-under-Lyne. Our system is so complicated that we have not enough people to simplify it. That is almost the admission of the Report, and it is a sad and unacceptable admission. We must simplify it. My feeling is that it will have to be by a merging together of the social security side and the tax side. I am glad to see that the Government have decided to have a study of this. I hope that the Financial Secretary will be able to say how the study is progressing. When it is completed we might perhaps all be able to read it if it is published.

The Inland Revenue Department is coping remarkably well with an impossible task, but it is we as legislators who have imposed that impossible task upon them. We are to blame and we must seek the remedy.

5.26 p.m.

Mr. Dick Douglas (Clackmannan and East Stirlingshire)

I was very interested in the comments of the hon. Member for St. Marylebone (Mr. Kenneth Baker). His closing remarks touched upon an aspect which is dear to my heart, perhaps for different reasons from the one he mentioned on the basis of the Report. He stressed the need to simplify the tax system by trying to get a net payment between the Inland Revenue and the social security system. This is an important theoretical matter which should not fall to the ground on the basis of the strictures contained in the Report.

The great merit of this system is that it does not identify the poor in the way that some of the Bills emanating from the Government identify the poor. It avoids a system whereby only the relatively poor sections of the community are known to go to the Post Office to receive certain benefits and only the very poor children are known to receive free school meals and other benefits.

The hon. Member for South Angus (Mr. Bruce-Gardyne) referred to Centre 1 which has become an area of contention in the Scottish Press and among Scottish Members. I have received many representations from my constituents about the efficiency of the centre, and I have written to the Financial Secretary asking for an examination to be made. When one tries to bring into a centralised system the tax affairs of 2 million tax payers some difficulties are bound to arise, and I should be surprised if the tax payers were not concerned. The hon. Member for South Angus has done Scotland a great service.

Paragraph 53 of the Report reads: The Inland Revenue Department are undergoing a revolution in regard to their clerical procedures caused by a major programme of automatic data processing. They realised as long ago as 1957 that substantial savings would result from the use of computers. A further reason for changing to computers was the problem of obtaining clerical staff in London. The Inland Revenue has managed to bring to Scotland and to Centre 1 no fewer than 1,350 jobs, but the type of publicity which some hon. Members have given to the Inland Revenue in East Kilbride will make it much more difficult for it to get the type of labour that is required and to maintain the numbers. What has been said will exacerbate the problem of labour turnover, and it will not help constituents to get their queries dealt with to their satisfaction. Such remarks do no service to the Inland Revenue, and are made more for the sake of shallow publicity in newspapers that look for deficiencies in the public service while ignoring the large number of "satisfied customers" whom the Department has served.

Part of the difficulty in any system of taxation lies in simplifying it to the point where equity is not unduly affected. Judging from some of the remarks made from the benches opposite, hon. Members seem to fear that the moral fibre of the community will be undermined by our present system of taxation, but I do not accept that we can judge moral fibre by cases of tax avoidance and evasion. In general, ours is a very good system. Many improvements are needed in it, but it does not do the present system any good to seek to draw from what tax evasion and avoidance there is the conclusion that our moral fibre is diminished. If, for reasons into which we cannot now enter, we have to adopt some other form of taxation, such as a value added tax, it will be partly because other countries do not have the same problems, and have therefore had to devise a system which does not directly sustain Government revenues.

The Report mentioned certain difficulties in training staff and getting staff, and I suggest that the Inland Revenue should look to the universities. It should cast its net a little wider in Scotland and England, and set up some liaison with our polytechnics, central institutions and colleges of further education. Some of those institutions are offering degree courses which might with a little discussion and co-operation be made more suitable for providing much needed recruits.

Can the Financial Secretary give some information about the harmonisation at Centre 1 of Schedule E administration with the collection of the tax? And how far have we gone in centralising not only the administration of Schedule E but the collection of taxes under several of the other Schedules? Some hon. Members opposite appear to view the trend towards centralisation with some awe.

The hon. Member for South Angus gave picturesque details of the service obtained from the Department's local offices in Dundee. I have visited those offices many times and the conditions provided for staff and visitors alike are deplorable. It is difficult for tax payers seeking answers to their queries to get the necessary privacy although I know that we had the Younger Committee inquiring into the subject of privacy.

I do not fear the computer so much, because with it I can see possibilities of introducing some degree of flexibility into our tax system. People want simplicity, but I think that they will put up with a little of the present complexity if they can much more closely relate what they have to pay in tax with the benefits that they receive.

Perhaps the most simple tax of all is the rates that householders pay. The rating system is simple to administer and not hard for people to understand, but it is still difficult to use it as a basis for necessary local expenditure. I know that the Government are producing a Green Paper on local taxation and revenue, but I plead with the Financial Secretary to consider using a computer, particularly in Scotland, in order to find out whether we can devise an effective local income tax as a buoyant source of local revenue. Without something of that nature we shall not be able effectively to reform local government or to give a reformed local government its necessary source of finance. My hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) clearly pointed out the difficulties of getting reform on the basis of this Report.

I suggest that while taking note of the Report, we should tell the Inland Revenue: "You have this massive computer. You are capable of using it for other purposes"—the East Kilbride computer has been used by the National Research and Engineering Laboratory—"can you think of a means of programming the computer and of using these new devices not only for centralising taxation now but decentralising the revenue-gathering decision so that people can more closely relate what they pay in taxes with what they receive in benefit?"

Broadly speaking, we have a very good and efficient tax system, perhaps the best tax gathering mechanism in the world, and before we make radical changes in it we should have much more discussion on the Floor of the House. As I say, the Report has many deficiencies but it has provided an opportunity for discussion. I should be grateful if the Financial Secretary could deal with some of the points I have made.

5.38 p.m.

Dame Irene Ward (Tynemouth)

This is a most fascinating debate and I congratulate the Opposition on their choice of subject. I have for very many years admired the work of the Estimates Committee. I have always thought it a great pity that all the evidence that has been collected over a very wide range of subjects has not more frequently seen the light of day in the House. If more attention were paid to committees which examine governmental matters in great detail, we should have better government.

One thing that worries me is that nobody who has spoken has commented on two Committees which are almost contemporary with the work which has been done by the Estimates Committee. For instance, the Select Committee on Procedure, on which I serve, is examining a very wide subject. If it presents an affirmative report to the House for action, it will add to the work of the Inland Revenue. It is a pity that there has not been associated with this debate the other work which is going on and which affects the Inland Revenue. The Chief Secretary is to give evidence to the Select Committee on Procedure on Wednesday. In matters such as these, in taking an overall view of improvement it is a pity that the whole case cannot be deployed.

Nobody has mentioned today that if the Inland Revenue causes hardship in its assessment of an individual's income tax, the case can be sent to the Parliamentary Commissioner. The case is examined in detail with a view to discovering why the mistake has occurred and what hardships have arisen. The Parliamentary Commissioner has been able to make up to the complainant for some of the hardships he has suffered as a result of mistakes which are bound to arise in the workings of the Revenue.

In support of what my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) said, it is important, in the interests of maintaining a proper conception of Parliament, that letters written to the Inland Revenue should be acknowledged. People tell me that they have written three or four times to the Inland Revenue, without acknowledgement. This is not the proper way for the Revenue to treat the people.

I fully accept the problem of obtaining well-trained staff, but I do not think that it should be difficult to obtain staff to acknowledge letters. I hope that the Financial Secretary will ensure that an instruction goes out to the effect that letters written to the Inland Revenue by people who are experiencing difficulty with their tax return and payments should at least be acknowledged.

We must do all that we can to ensure that the staff of the Revenue is properly housed, has proper conditions and is properly remunerated. I hope that the Chancellor of the Exchequer, in the difficult situation he is facing with regard to salary increases, will not be inhibited in discussing the position of his own staff. The Report causes me deeply to regret that for a long time under all Governments the conditions of the Inland Revenue staff do not seem to have received the attention they have deserved. I hope that we can look forward to the day when those who serve the Revenue so loyally and in such a hard-working way will be adequately remunerated and housed. I have seen the conditions of some of them and I fully agree with what the Report says.

It is not often that I mention in the House details of my personal problems, but I was furious the other day when I received from the Inland Revenue a little piece of brown paper relating to Schedule E, or whatever it is that I pay taxes under. This form referred to my "employer". Whoever thought up the wording for that form does not understand the democratic position of Parliament. Parliament is not an employer. Neither I nor any other Member of the House has an employer.

Mr. Patrick Jenkin

rose—

Dame Irene Ward

I ask my hon. Friend not to worry. I am going to put it quite nicely for you in a minute.

Mr. Deputy Speaker (Sir Robert Grant-Ferris)

Not for me, I hope.

Dame Irene Ward

Hon. Members who receive forms such as this must be surprised to learn that they are the servants of Parliament. I took great exception to this form. I sent it immediately to the Chancellor of the Exchequer, who receives masses of letters from me, as does my hon. Friend the Financial Secretary. They must find this irritating and embarrassing. I said in my letter, "I cannot accept this form". I received in reply a charming letter from the Chancellor, as always. I have a great admiration for the present Chancellor, particularly in the difficult job he is doing. He said to me, "I sympathise and agree with you, but please do not press me to print any more forms". His idea apparently is to reduce the number of forms.

I agree with my right hon. Friend up to a point. I shall not press him, but I hope that one day supplies of this form will be exhausted, that there will have to be a reprinting and that the intensely objectionable word "employer" will be removed.

If my hon. Friend the Financial Secretary wants to add anything, I should be delighted to give way so that he may do it now. Both he and my right hon. Friend the Chancellor will accept that I will not press the matter, but it should be made clear on the record that hon. Members should not be addressed as if they are under some employer—heaven knows who or what. Does my hon. Friend the Financial Secretary wish to intervene?

Mr. Patrick Jenkin

I think that if I were to say one sentence by way of intervention it might save a little time later. As the letter which was sent to my hon. Friend explained—I know all about the letter, because I drafted it—the word "employer" in the P.A.Y.E. scheme is given an extended meaning—that is, anyone who pays remuneration to a Schedule E employee. "Employee" is given an extended meaning to mean anyone who holds an office. So it does not need to be under a contract of employment. Members of Parliament hold an office; and under the old legislation it was a public office. I hope that my hon. Friend will accept that no discourtesy is intended to her or to any other Member of the House from the fact that on these forms Parliament is described as an employer.

Dame Irene Ward

I am very grateful to my hon. Friend. I do not agree with one word that he has said. I know we have had an explanation about "office". I do not hold an office. I would not be here if I had not been voted in by my constituents. "Office" is a ridiculously old-fashioned word. The Treasury is old-fashioned. It goes back into history, and history has altered. We are not living in the nineteenth, eighteenth or seventeenth century. It was a very polite letter that I had from my hon. Friend the Financial Secretary, but I still think "office" is a ridiculously objectionable word. As the years have rolled on there have been all sorts of alterations to offices and that sort of thing. I just do not like the word, and, so long as I can find ways of expressing my views, I shall continue to do so until those wretched papers run out.

I have also listened with great interest to what has been said by quite a number of hon. Members on both sides of the House, saying that they would prefer simplicity to equity. I hope to goodness that we shall not adopt that approach in this House of Commons. I shall not accept it. I know only too well that equity always appears to go to the bottom of Cabinet agendas, and this applies to all Governments.

We should aim at both simplicity and equity. I know nothing about devising financial provisions in connection with the collection of taxes. I only know that it is a great nuisance. I cannot offer any comments on how taxation could be simplified. I complete my own tax forms, and then I get into difficulties anyhow. The Inland Revenue is always extremely helpful, and one has just got to pay up. But I mind tremendously about equity, and much taxation today does not provide for equity. I do not think the Financial Secretary will agree with me. He writes me the most delightful letters, but I do not seem to make any headway. I really regret that.

Reference has been made to the payment of maintenance allowances and alimony, to deserted wives and divorced wives, and I fully agree with what was said on that subject. But, taking a slightly different point, when a court—a summary court of jurisdiction or a higher court—awards a sum of money for the purpose of looking after a child—I am not talking about married women or spinsters or anything like that, because there are always arguments on both sides when a marriage is dissolved—for the Treasury to claw back money in the form of taxation is far from equitable. Of course, we want to see that children are adequately provided for. When a court takes from a husband a certain amount of money, based on what he can afford—sometimes he cannot afford very much, particularly if he has two households to maintain—and the court makes an award to the child, for the Treasury to claw back money which never was the Treasury's money anyhow—it was the husband's money and it has been awarded to the child—this is not based on equity.

In the long run, the Treasury has got to make a choice. All the Inland Revenue people have got to make a choice. They will come down on the side of simplicity, and equity once more will fly out of the window. As I say, my hon. Friend the Financial Secretary has written some nice letters to me. I do not know whether we have really got together on the subject, but perhaps the gap is narrowing. What worries me is that apparently he does not see any chance of this idea of mine becoming accepted. But why not? It is bad enough claiming taxes from people who have got to pay them. But when a court says to a man, "You must pay so much per week for your children"—the wife is working trying to keep the children in the same sort of conditions which applied when the wife and husband were living together—and then when the Treasury claws back money which never belonged to the Treasury, this is not equity.

Before the last election I had intended to introduce a Ten-Minute Rule Bill to get rid of this ridiculous idea, but I gave way to my hon. Friend the Member for Bury St. Edmunds (Mr. Eldon Griffiths) who wanted to introduce a police Bill. I simply cannot understand how the Treasury dare do this. I have written in detail to the Chancellor of the Exchequer and he will get my letter tomorrow morning. Every now and again I raise various cases. I have raised with the Parliamentary Commissioner a case in which a mistake was made by the Inland Revenue. The wife was working very hard, far harder than she ought to have done, to help maintain her six children. The Inland Revenue made a mistake and, as a result, the wife had to go to the Social Security office to obtain money to enable her to keep going. This was a charge on the taxpayer.

The question has been raised of social security payments in relation to tax relief, and I fully agree with what has been said. I am very sorry that I have been unable to persuade the Financial Secretary to try to alter this situation. I know that he cannot carry as much weight as all that, but he could argue. We have elected so many magnificent young men into the House so that they will become arguers. I recognise that arguing with the Treasury—I am talking about the Civil Service side of the Treasury—is very difficult indeed. I sometimes wish that the Treasury civil servants would come up to my part of the world. I could show them a lot of things which might soften their hearts so that they would try to deal in equity and let simplicity fly out of the window.

Grapevines are chancy things in the House of Commons. We are always rushing along grapevines, and sometimes they are proved right and sometimes they are proved wrong. I want to make my position perfectly plain on a nasty rumour which I have heard. I do not support, and would not support, a move to take any important matters in the Finance Bill, apart from technical questions, in Standing Committee. We must argue all the questions of equity and simplicity on the Floor of the House. The collection of taxes affects all sorts of businesses, industries, development areas, professional bodies, industrial workers—in short, human beings generally—in different ways.

I was once suspended from the House of Commons for a protest which I made on this sort of subject. I do not want to have to do it again; once in a lifetime is enough for anyone. My party was extraordinarily nice about it, but in parliamentary life compliments do not necessarily go with action. I should like compliments and action to run together. It would be much better for the country sometimes if they did.

I hope, therefore, that the rumour which I have heard, that the Chancellor of the Exchequer is thinking of sending too much of the Finance Bill to a Standing Committee, will be blown out of the window. It would not be a good idea at all. I do not expect the Financial Secretary to be able to answer me on that point today, but I always believe in giving warning in advance. One should not suddenly spring something on Ministers. They need time to reflect. I ask my hon. Friend the Financial Secretary, therefore, to make certain that the Chancellor of the Exchequer knows my views. It is a question on which I feel strongly. Although I do not mind technical details being considered in Standing Committee, I should be extremely annoyed if any new Clauses or matters such as those to which I have referred—maintenance allowances, and so on—were taken in Standing Committee. I doubt that I should be a member of the Standing Committee, and I regard it as most important that these matters should be raised on the Floor of the House so that—

Mr. Deputy Speaker (Sir Robert Grant-Ferris)

Order. I am sorry to interrupt the hon. Lady, but, in her enthusiasm, she is straying a little wide of the subject before the House. I hope that she will keep strictly to the matters covered by the Motion.

Dame Irene Ward

But these are important questions, Mr. Deputy Speaker. I doubt that even you have read the whole of the Report. It takes a lot of reading. This debate gives us a wonderful opportunity, for once in a while, to have a Treasury Minister on the Front Bench listening to the views of back benchers. We want to influence the Treasury's thinking on how the requirements of simplicity and equity in taxation can be brought together for the common good.

6.3 p.m.

Mr. Ted Leadbitter (The Hartlepools)

I hope that I shall be forgiven if I do not attempt to comment on the speech of the hon. Lady the Member for Tyne-mouth (Dame Irene Ward). The hon. Lady's constituency is not far from mine, so I could anticipate a good deal of what she had to say. However, she did intrigue the House at one stage when she spoke of the interesting and nice letters which had passed between herself and the Financial Secretary, and she struck a new note, I thought, when, with reference to certain women of whom she was speaking, she said that they were getting together on the subject and the gap was beginning to narrow between them. I became a little concerned at that point and wondered whether the hon. Lady, as she put it, would spring something on the Minister. However, perhaps I had better leave that now.

The interesting feature of the debate so far has been the way in which few hon. Members have stuck really closely to the scope of the Report. As a member of the Estimates Committee, which spent many months on this investigation, I know that we realised in the early stages that we could not deal with all the complexities of the tax structure, concerning ourselves with notions of tax reform and all the social consequences which would flow from such thinking. Inevitably the Committee had to deal with the Inland Revenue Department.

As a Committee, we decided that there were three forms of thinking which we could apply to our investigation and to the evidence which we took. We had to consider, first, the shortage of certain important members of the Inland Revenue staff, the inspectorate, in particular, second, the question of automation, and third, the question of the structure of the Department itself.

I wish at the outset to express gratitude to all the witnesses who gave evidence to the Committee, and, in particular, special gratitude to Mr. N. C. Price, the Deputy Chairman of the Board of Inland Revenue, who came before us on no fewer than 11 occasions. This was a remarkable attention to duty, and Mr. Price's service to the Committee as a witness was invaluable. Second, I express our gratitude to Sir Leonard Barford, the Chief Inspector of Taxes, who came before us on five occasions.

Finally, in speaking of those who helped to make the work of the Committee worth while, I feel that it would be improper not to accord a special place to Sir Eric Errington, until recently the hon. Member for Aldershot. He is a remarkable man. On one's first acquaintance with him, one could easily become irritated by his eye for detail. Sometimes, one could, perhaps, feel a little annoyed that he asked so many questions that other members of the Committee did not seem able to put questions or put their points over. In the course of time, however, I began to see how Sir Eric Errington's diligence, industry and experience worked towards the production of the sort of Report which he, as Chairman, had in mind.

We had a very successful year under Sir Eric Errington's chairmanship, and, as I now read the Report as an ordinary Member of the House, recognising its framework and the manner in which it was put together, with the assistance of those who helped us so admirably, the Committee Clerks, I realise that Sir Eric achieved what he had set out to do. He directed to the complex subject before us three simple modes of approach and thinking so that, in addressing ourselves to the three questions to which I have referred, we might produce a Report which would give rise to a debate such as the one we are having today, then a further debate upon the wider considerations of tax law and tax reform and all that flows from automation.

I come now to the question of staff shortage. Inevitably, there is a conflict here arising from the natural desire of the Inland Revenue itself to maintain the highest possible professional standards and, on the other hand, the desire of the general public to have a quicker response to their needs. The hon. Lady the Member for Tynemouth rightly referred to the question of equity and simplicity, and I took this point in her speech as being the most interesting of all within the context of the conflict to which I have just referred, namely, the conflict between the desire for professionalism, on the one hand, and the needs of the public, on the other. How can one achieve equity and, at the same time, a good measure of simplicity? There is no one final answer in a highly complex industrial society such as ours.

I will pluck one figure from the Report as an example. There are 11 million employment changes per year in the United Kingdom. But that is only a microscopic part of the business of the Inland Revenue. The Chief Inspectorate branch has under it about 50,000 employees throughout 750 district branch offices. How does one organise, even with that small amount of labour force, the ability to deal with 11 million employment changes? Plucking such figures out of the whole complex of the work, one not only has an interesting arithmetical exercise but a first glimpse of the magnitude of the business.

This is why I was so upset by the hon. Member for South Angus (Mr. Bruce-Gardyne). I apologise in that I am referring to him when he is not here, but he has been flowing in and out in a kind of unsettled way and I cannot anticipate his appearances. The hon. Gentleman misinterpreted the feeling of the House in a debate of this nature by taking upon himself the sole job of trying to make some petty party political points out of his attitude towards East Kilbride.

The Sub-Committee had a Conservative Chairman in Sir Eric Errington and both Conservative and Labour members. We were not concerned with party political points but with the objective examination of the Inland Revenue Board. Through the whole process of discussion, question and answer, and the participation of this unique instrument, a House of Commons Committee, with witnesses, we were seeking to evolve answers which might be useful in helping us to make some contribution to the improvement of the Inland Revenue service. The hon. Member made a grave misjudgment of the temper of the House, because that is the job we are also seeking to do today. We are concerned in this debate to examine what best can be done in order that the general public can receive a better service.

It is important to stop here for a moment and examine that phrase, "better service". The hon. Gentleman plucked from his file several cases of members of the public who had suffered some inconvenience in not having responses, either in the nature of the question they wanted or in the time they wanted, from the Inland Revenue. He took these isolated cases and tried to pluck out an allegation of discontent and inefficiency at and about Kilbride which I now seek to challenge.

I have spoken about seeking a better service. I am bound, therefore, to say that, from my experience on the Sub-Committee and both before and since as an ordinary Member of this House dealing with ordinary casework, the courtesy and efficiency of the Inland Revenue personnel are an example not only to this country but to the world. I say that with profound conviction. Anyone who has travelled abroad and seen the conditions in other countries will not accuse me of exaggeration when I say that, in our Inland Revenue service, we have professionalism of the best type.

The courtesy of the Inland Revenue staff is the more remarkable when one considers the magnitude of the job they have to do. At no time can I fault them in this. However, by the very nature of the complexity of the problems they face and by the nature of the workload they have to shoulder, there are bound to be people in a high-density population such as ours who will from time to time encounter difficulties and will inevitably have to go to their Members of Parliament to "gee along", as it were, their problems for more immediate attention.

Having said that, however, we must bear in mind that we are talking about a service which is excellently staffed. By the same token, and within my own knowledge, the service itself is anxiously from day to day reviewing not only its work but how best to carry it out. It is reviewing its recruitment, its standards, its efficiency and its structure, having regard to the progress in the computerisation of the nine regions.

I want to turn now to some of the recommendations and the answers we have received to them from the Inland Revenue Department. One of our main concerns was with the recruitment of graduates for the Inspectorate. We felt that this should be brought about by sufficiently trained personnel officers. I am glad that the Department has not only accepted the need for this but has done something about it. How effective this action is will be for others to judge later on, since only a few months have passed since the recommendation was made and answered.

But I have one criticial note on the question of recruitment. The Department said that its university liaison officers were already working on the lines proposed by the Committee. I must say that I was not impressed by the results of the work of the liaison officers. I was most certainly impressed by their enthusiasm but not by their results, because it seemed to me they were having to do too much. They come from the Inspectorate, and in their district offices they have a lot of work to do quite apart from visiting the universities in their areas in order to try to make some personal contact, all within about three weeks during a year's work.

Worse than that, with the best will in the world an inspector having the interests of his Department at heart and seeking to achieve the standards set by his superiors is hardly able to produce results if he has to take a graduate to his district tax office to see the functional state of his work in the field. In many cases a graduate would be very much put off if he saw some of the conditions in tax offices.

Sometimes tax offices look dismal, often they are not painted enough, or they are painted in the style of the Ministry of Public Building and Works and lack the woman's touch. A few pastel colours would make them more attractive. Sometimes the furniture is dismal and uninspiring. A qualified person who might be thinking in terms of a career in a tax office would be put off by the unfortunate environmental conditions. Perhaps the Inland Revenue should think about changing its approach to recruiting through liaison officers.

One of the best ways to seek an improvement in recruitment is to look at the examination conditions. We are living in a new age. Once upon a time academic success appeared to stem from the roots of the 11-plus. Everybody believed that biologically there was growth in the human frame but that the capacity of the brain stood still. That fallacy has now been exposed. Education is changing. Similarly, there has been a presumption for far too long in the Civil Service that high qualifications for entry are synonymous with professional standards. That is not necessarily so. There are men who can make a high professional contribution on the basis of academic qualifications; there are others who can make a similarly fitting professional contribution with a combination of academic qualifications, experience, personality, attitude and aptitude. A wide range of qualities goes into a man's ability to carry out his duties efficiently.

Therefore, the answers of the Department on the subject of examinations are hardly supportable. We suggested to the Inland Revenue that it should reduce the six years which higher-grade tax officers must serve before being considered for modified training and the four years which modified inspectors must serve before selection for full training.

It was thought once that a plumber could be trained only if he served a five-year apprenticeship. That idea has gone. What are we talking about in the 70s when we say to an inspector, higher grade, "You have to wait six years"—

The Minister of State, Treasury (Mr. Terence Higgins)

Tax officer.

Mr. Leadbitter

I accept the correction. What is the idea of saying six years in that case and four years for the other grade of officer that I have mentioned? We have men of great ability in the higher echelons of industry who have been a dynamic force when their initiative has been tapped and they have been given the opportunity. Therefore, the Inland Revenue might look again at qualifications and the time members of staff have to serve before promotion is possible.

Automation is more pertinent to the movement of personnel than the promotion of them. The hon. Member for South Angus, with his fleeting visit to East Kilbride, missed an important point about the function of the centre. When I went there I found it exceptionally intriguing. For those who are not acquainted with the capacity of the I.C.L. 1900 equipment at East Kilbride, the Report will perhaps give an indication of its capacity and of one or two of the reasons why the hon. Gentleman was able to pick on a couple of mistakes. The Report says: The computer can read and amend about 250 taxpayers' records per second and print 160 notices of coding or 50 notices of assessment per minute. In a typical day it will calculate 20,000 tax liabilities, 3,000 code numbers and record 8,000 changes of employment. To manage that, an awful lot of people would have been required on the ground in district offices. The change taking place can be seen in that brief comment.

The hon. Member for South Angus referred critically to East Kilbride, but he has overlooked what is happening there. First, when the decision was made to construct the building, we were talking in terms of a five- to six-year programme to get it from the planning board to the end product. While it was approaching completion, administrative steps had to be taken to call in from Scottish officers the case papers of all those liable to be assessed for tax. In addition, a housing programme had to be laid down for the incoming staff. Then the new tax papers had to be programmed on to magnetic tape to evolve the first steps of computerisation.

It is understandable that the Inland Revenue has made one or two mistakes. Although mistakes have been made, it is that the errors have been minimal compared to the units of production. As an example, last week a constituent of mine working for an employer whose registration is with East Kilbride wrote to me complaining that he had not received a rebate to which he was entitled. I wrote to his district tax office, and that office immediately got in touch with East Kilbride. Within 48 hours of sending my letter, I had a call saying that the matter was being attended to. I cannot imagine anything more rapid than that. Even to those who criticise our postal system, 48 hours is fairly speedy for a matter to be dealt with by a unit such as the Computer Centre at East Kilbride.

In the next 10 years, nine other centres are to be opened. I think that one should add a word of caution in this connection. We must be careful about the types of equipment selected for the computer centres. I have the privilege of serving on the Computer Sub-Committee of the Select Committee on Science and Technology and, although it would be wrong to repeat any of the information supplied to that Committee, it is right to say that great changes are taking place in computers. New equipment is coming along all the time. It is important that the equipment in our regional offices is such that the offices are compatible with each other. We have also to bear in mind the development of a huge grid across the country involving banks and many Government Departments, including the Department of Health and Social Security. The computer complex should be studied with the greatest care so that compatibility can be achieved and sustained, and that can be done only by a day-to-day examination of the computer business. Another point concerning the computerisation of our Inland Revenue services is that, although we have received assurances, an exceptionally vigilant eye must be kept on confidentiality.

I think that hon. Members who served on the Committee can rightly feel proud. we have done a useful job. A great many educational spin-off benefits are gained by those who take part in such an exercise. The new acquaintanceships and associations made are part of the intriguing life of this House and never to be forgotten. But, at the end of the day, we must ask ourselves where we go from here. I intervened earlier in the debate to remind the House that the Estimates Committee examined the Inland Revenue in 1961 and made a recommendation, repeated in this present Report, on the future organisation of the surtax department. I will not develop the point because it has been dealt with adequately. However, it raises the interesting question: what now?

I hope that the House will not take the view that, once this debate is concluded, this important Report should go into a pigeonhole and be forgotten. Many hon. Members have a contribution to make. The corollary of the efforts of the officers of the Inland Revenue is that questions are asked on the basis of this Report. It is only by a continuing interest in the Committee's recommendations that we can harmonise the activities of this House and the Board on matters which are essential if this service is to protect the country's institutions in a constructive and positive way.

It is misleading to say that the Inland Revenue service or the tax col- lector is unpopular, and then to go on and on about it. I do not believe that that view is widely held. The British character is quite different from that. However, it is a presumption which certain hon. Members make from time to time.

Among the officers and staff of the Board and the professional bodies associated with it there is a determination to meet the needs of a modern society and have the kind of automation to enable them to deal with income tax matters efficiently. It is also necessary for them to have that personal contact, often minimised for reasons which I do not understand, so that they may be involved personally with the affairs of the Board. In order that these propensities may be kept alive, it is important for Members of Parliament to make the largest contribution possible by not allowing this Report to be forgotten. In the months ahead we ought to base questions on it and ask what progress is being made. If that is done, I am certain that the Inland Revenue will anticipate our requirements and get on with the job.

6.36 p.m.

Dr. John Gilbert (Dudley)

I will not detain the House very long with my comments on the Report. Perhaps I might begin by adding my congratulations to my right hon. and hon. Friends who are responsible for its being debated today. However, there is one unfortunate element of timing of which they may not have been aware in choosing today for a discussion of this Report, and it highlights one general defect in the Report itself.

The admirable people who gave evidence to the Committee were almost exclusively exceedingly senior gentlemen, and none the worse for that. But it is noticeable that there is no evidence from the rank and file members of the staff of the Board of Inland Revenue in the provinces. It is true that they were represented by their general secretary and that the trade union submitted some evidence. But the evidence of the Staff Federation suggested that more field work should be done in the Department's branch offices.

To my mind, this is a fairly general defect in any investigation of this kind. All too often we seek the views of the generals about what is going on among the infantry in the firing line. The unfortunate feature is that the Board of Inland Revenue, as I understand it, sought the advice of the Staff Federation and began to conduct an investigation into the views of the staff at the grass roots level. Not very long ago, a constituent of mine completed a questionnaire sent out by the Board consisting of no fewer than 60 pages. It is unfortunate that the resulting information has not yet been assembled in report form. When it is, I hope that it will be published and that we shall have a chance to consider it. It was my understanding that the report was due by the end of December.

Without accepting the sense of crisis which so many hon. Members have attempted to introduce into the debate, I for one am prepared to accept that morale in the Department is not as high as it might be. But that is not just a matter of overwork. There are far more subtle problems involved in it.

I draw attention to a sentence in paragraph 4 of the Observations by the Chancellor of the Exchequer and the Board of Inland Revenue. It says: Candidates for the open competition for Inspectors of Taxes are required to have a university honours degree or its equivalent, since the nature of the work the fully trained Inspector has to perform calls for evidence of intellectual attainment of this order. I am told that one of the more serious causes of poor morale amongst staff is that a great many highly trained people have to deal with work which represents no intellectual challenge to them. To an extent, that may be an indication of the excessive volume of work, and I would like to suggest that it is high time that we introduced some systematic form of sampling into the work done by the Department.

I am well aware that inspectors have discretionary powers as to the amount of inspection which they give to the returns of individual taxpayers. I have some figures and I should welcome the comments of the Financial Secretary as to whether they are of roughly the appropriate order of magnitude. I understand that an inspector may expect to examine about 1,000 traders' accounts in a year and that an officer may be responsible for 3,000 to 4,000 taxpayers' accounts a year.

If the latter figure is accurate, it represents a work load of about 80 accounts a day. The most that can be given to an individual account on average on that basis would be about six minutes. Clearly, it is not practicable for a single officer to go through accounts at that sort of rate, to deal with counter inquiries, correspondence and internal memoranda, and to produce anything like the calibre of work which the officer himself would like to be able to produce in order to get proper satisfaction from his job.

There is no reason why we cannot have a proper sampling system. We have this sort of thing already. It is operated by the Customs and Excise. At Heathrow Airport, for example, the Customs examines only a small proportion of the total number of passengers who go through the green-marked door. There is the same sort of sampling system in the Social Security Department. There is no reason why the principle should not be extended in a systematic and public way to the Board of Inland Revenue.

However, I am in favour of an even more fundamental change in the nature of the Department's kork. The only duty of the individual taxpayer at the moment is to let the Board know what his income has been for the previous year and then sit back and wait. If he is agile enough, he may wait for a very long time, but finally he will have to pay the tax that the Department says is due from him.

I see no reason why we cannot move over to a system by which, in addition to telling the Inland Revenue what his income was in the previous year, the individual taxpayer also carries out his own individual assessment to tax. In addition, he would pay that tax by a fixed date in each calendar year. If he failed to report his tax by a fixed date, there would be penalties, including a fine. If, having reported his tax by the due date, he did not pay enough, interest charges would run from the legal date for the amount by which he had fallen short. Conversely, if he had overpaid tax in an access of generosity, the Revenue would pay interest to him on any excess.

These proposals may sound revolutionary, but such a system is in operation already in many other countries. I have had practical experience myself of making tax returns when living in Canada and the United States. I refuse to believe that the ordinary taxpayer in this country is less honest, less intelligent, less reliable, less sophisticated than the average taxpayer in Canada or the United States. The system works there. It saves a great deal of time for the staffs of the tax-gathering agencies, and, possibly even more important, there is a considerable improvement in morale, because the enervating delays in the collection of tax are eliminated.

My hon. and learned Friend the Member for Lincoln (Mr. Taverne) was the first to mention wastage in the staff in the Inland Revenue. I listened to him with considerable interest and agreement. But I am concerned not only with the flow of staff out of the Department. I see no reason why we cannot be more ambitious than merely hoping to reduce that. If we apply the Fulton recommendations on the Civil Service energetically enough, there is no reason why we cannot hope for a flow into the Department of people in mid-career. It would not just be a matter of people coming into the Department in their early 20s, leaving after two or three years and being lost for good. We should also be able to expect to recruit skilled people well advanced in their professional careers, men in their 30s and 40s.

The Board may care to consider whether it would not be possible to introduce more promotion opportunities for the staff outside London. I am well aware that every member of the Civil Service signs a paper to say that he will serve wherever he is called upon to do so during his career in the service, and from time to time he is asked to sign a renewal document saying that that remains a condition of employment. But the hierarchy of the Inland Revenue is very narrow structured towards an apex in London, and there could still be considerable opportunities for widening the area of promotion in cities outside London.

There is one specific recommendation in the Report to which I should like to draw the attention of the House; namely, the first. I also draw attention to the comments of the Chancellor of the Exchequer. The recommendation is simple. It says: The task of recruiting graduates for the Inspectorate of Taxes should be assigned to specially trained personnel officers. There is almost a full page of comment on that recommendation. I will not detain the House by reading the first two comments at length, but the final comment is: The Recommendation also refers to special training in recruitment work". It is not a question of "also referring"; this is the only matter to which the recommendation refers.

The only remaining comment from the Chancellor is that arrangements are in hand to take full advantage of opportunities, both inside and outside the service, for training members of the recruitment section in such aspects of their work as interviewing. That is simply not good enough. The present situation is that members of the staff are put on this sort of work for about 12 months, or two years if they are lucky, and then taken off with no chance to develop the sort of specialist skills of recruitment personnel for this type of work.

I endorse what my hon. and learned Friend said about the amalgamation of surtax and income tax. I hope that proposals of this sort, which are not new, will be much easier to achieve after decimalisation day, when once and for all we shall rid cur tax system of such incredible items as fractions of two-ninths. I must confess that it has always been one of my ambitions to meet the gentleman who was responsible for introducing the fraction two-ninths, because I never understood it and I defy hon. Members to calculate two-ninths of almost any figure I like to name within something like half a minute; it is a total monstrosity. When we get decimalisation, that sort of nonsense will be exorcised for good from our tax system.

I also have some views about corporation tax and capital gains tax with which I will not now detain the House. Those taxes add to the complexity of a tax system. I will not comment on some of the wilder observations of the hon. Member for South Angus (Mr. Bruce-Gardyne), but to suggest that all the complexities of the tax system result from 1965 and there on is totally to fail to read history. Surtax, which originally was supertax, was introduced in 1910. The first taxation of capital gains was introduced by the Conservative Party during their last Administration. Probably the most absurd element in our whole taxation system are the Schedules A to F, which we have grown up with and to which we have become acclimatised. As has been said earlier in this debate, they date from William Pitt; we have him to thank for them. Therefore, to blame all the complexities of the tax system, which is striving for equity, upon five years of Labour Government is too preposterous to be supported.

We can all agree on how we want simplicity, we can agree that we want equity, but there has to be a trade-off between the two. Worse than that, one man's equity is another man's inequity and we shall never get agreement, even among hon. Members on the same side of the House, about what is equity in a tax system. There are no absolutes about equity, and there never will be.

I entirely agree with my hon. and learned Friend the Member for Lincoln that we do not have enough consistent high-level study of fiscal matters. I know that my hon. and learned Friend has plans outside the House to try to remedy that situation. Endorsing what he has said, I hope that it will not be too long before we get a Committee of the House which will devote itself consistently to studies of tax matters and which will have the standing of the Estimates Committee and the Public Accounts Committee.

6.52 p.m.

Mr. Joel Barnett (Heywood and Royton)

I should like to begin by paying my tribute to the work of the Inland Revenue, both as a Member and, wearing another hat, when I still do a little work as a practising accountant, in which I have some connection with the Inland Revenue and know something about the work that inspectors of taxes do.

We are told in the Report that the Revenue is understaffed and overworked. We were told by the hon. Member for St. Marylebone (Mr. Kenneth Baker) that it was administrative chaos. That is nonsense and the hon. Member should know it.

Mr. Kenneth Baker

I said "bordering upon it".

Mr. Barnett

It is not even bordering upon it. There is nothing in the Report that could lead one to believe that it is bordering upon administrative chaos. There is no basis for that sort of conclusion.

My hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), supported by my hon. Friend the Member for West Lothian (Mr. Dalyell), put it very well indeed when they analysed the Report and showed that it indicated not only that there was no administrative chaos, or even a situation bordering upon it, but that there was at least doubt about the extent of the understaffing and overworking of the Department.

I accept that there is some under-staffing and overworking, but I would not go along with those who believe that there is now a situation which calls for some of the conclusions put forward in the Report. I refer in particular to paragraph 74, under the heading "Conclusion". In referring to this whole question, it states Your Committee are of the same opinion, and hope that this request for a breathing space will be heeded. That is the most serious part of the Report because if the House or the Government were to accept it, the situation would be serious.

The major reasons given by the Committee for the fact that the Department is understaffed and overworked appear in paragraph 73. The Committee refers to the Report of the Select Committee on the Parliamentary Commissioner and to the fact that over a two-year period in 30 out of 79 cases that were referred to the Parliamentary Commissioner there was evidence of maladministration. With 25 million taxpayers, to find 30 cases of maladministration over a two-year period is certainly not of itself evidence of understaffing and overworking.

I could quote particular points, as other hon. Members have done. The hon. Member for South Angus (Mr. Bruce-Gardyne) gave only one or two examples. We could all cite constituents who come to us about repayments which take a long time. It would hardly be surprising to find that there was a mass of overworking and understaffing in the Inland Revenue.

Mr. Leadbitter

My hon. Friend's approach is generally right, but the evidence of the cases that were put before the Parliamentary Commissioner is hardly valid to support the point which he is making. Members of Parliament deal with a good deal of work, as a result of which what goes to the Parliamentary Commissioner is fairly minimal.

Mr. Barnett

I take the point made by my hon. Friend that the 30 cases would be only a small part of what comes to hon. Members, but even if that is multiplied by a large number, it still does not prove the point that my hon. Friend and the Committee are attempting to make. I am not saying that there is not an element of understaffing and overworking in the Department. What I am saying is that the Report certainly does not bring it out.

I believe that there are ways in which the capacity of the Revenue could be improved. Some of the points have already been made, but there is one which has not been raised. I refer in particular to what goes on at the general commissioners. Accountants in practice will be aware that meetings of general commissioners constantly take place at which hours of time are wasted, not only of senior inspectors of taxes, but of accountants and of the lay commissioners themselves, who are generally solicitors and a similar type of people who give their time free. Much work, if not the great proportion of work, at the general commissioners' meetings consists of simple applications for an adjournment which in 90 or 95 per cent, of cases are granted.

To get that, we have accountants sitting about for hours waiting for the case to be heard. We had the lay commissioners sitting to hear the cases. Perhaps in one in a hundred, or possibly even more, they have a serious job to do other than the granting of an adjournment. The inspectors of taxes have to give up much of their time to this work, which, I consider, could to some extent be avoided. I hope that the Government, in conjunction with the Inland Revenue, will consider reorganising the way in which the general commissioners work and the way in which the appeal system works on Schedule D cases in particular.

We have heard a great deal of debate about recruitment. One thing which is clear from the Report is that, whilst there is a shortage of inspectors of taxes, clerks and tax officers of the lower grades are not in short supply, as was made clear by the Chief Inspector in reply to a question when he said that it was possible to get as many of the lower-grade staff as were wanted. There is, therefore, no great shortage of that type of staff, although there is the wastage which has been referred to by many hon. Members, and particuarly by my hon. Friend the Member for West Lothian who referred to the evidence of my right hon. Friend the Member for Sowerby (Mr. Houghton) in this respect.

Some of the major changes I would like to see in our tax system, such as the abolition of the earned income relief, very substantial changes in personal allowances and the abolition of surtax, would not require the work of inspectors of taxes. They would involve the sort of administrative work requiring not an inspector but rather people at a lower grade, including the tax officers.

I turn now to the question of the lower grades and of the recruitment of graduates to the service. One recognises—and this point was made by my hon. and learned Friend the Member for Lincoln (Mr. Taverne) and by my hon. Friend the Member for Dudley (Dr. Gilbert)—that there is wastage. The fact is that there is still room for improving the opportunities for people to go from the tax officer grade to become inspectors of taxes. A number of hon. Members, including my hon. Friend the Member for East Stirlingshire (Mr. Douglas), referred to the opportunities that there should be for obtaining suitable candidates from, for example, the polytechnics. My hon. Friend the Member for The Hartlepools (Mr. Leadbitter) also made the point that a good deal could be done about the period of training. I know that the Inland Revenue is looking at that aspect. I endorse the Committee's recommendation that much more can be done about bringing forward more quickly officers below the inspector level. However, although the percentage of graduate inspectors is not as high as we would like it to be, even at this stage it is still a higher proportion than the proportion of accountants who are graduates, although that, too, is increasing rapidly.

It seems, therefore, that there is considerable room for increasing the numbers coming through from tax officer level to inspector level. But the problems which have been created by the shortage of staff have led many people, including some hon. Members, to put forward ideas about the simplification of the tax system—for example, along the lines of a value-added tax or similar measures, or a reduction in direct taxation, although on that point I do not entirely accept the logic of those who have proposed it Hon. Members opposite made out a superficial case in claiming that all we have to do is substantially reduce direct taxation and we thereby simplify the tax system. That was the purport of their argument, and I do not accept it. Admittedly, it is attractive on the surface both administratively and politically, but surely the Government, after their mini-budget, will perhaps not be quite so dedicated to a system of unfairness such as a massive cut in direct taxation would imply.

One turns to consider other adjustments. The late Iain Macleod put forward the idea of introducing the American self-assessment system. It is argued in this connection—and there is some evidence for it—that our cost of collection is considerably higher than that of the United States. The American Government collect, from four times as many tax payers but with a similar number of inspectors, about 12 times the tax revenue that we collect. It is argued, therefore, that there must be something in the self-assessment system and we should consider introducing it here. This argument is worth examination, and I want to do so now.

I take first the lower collection cost. I submit that the comparison is of doubtful value. Pages 286 and 287 of the Report indicate one of the reasons why the collection cost is lower. It shows that once again we have much to lay at the door of our low economic growth, because if our tax yield had been 50 per cent, higher the percentage cost of collection would have been reduced by 25 per cent. In any case, the comparison is misleading because to have a self-assessment system would be to transfer the cost to the tax payers.

The hon. Lady the Member for Tyne-mouth (Dame Irene Ward) referred to the complications of our tax form. Ours is about six pages, but the American form, under the self-assessment system, consists of 48 closely packed pages. Some of it is explanatory but it is nevertheless a very much larger form. If our income tax form supposedly could be completed by a five-year-old child—in practice it cannot be completed by a 55-year-old experienced business man—then the American tax form, if introduced here, would be very difficult for many accountants to complete, and it would certainly be a nightmare for the taxpayers because it is so enormously involved. If anyone thinks that we would be introducing simplification by having the American self-assessment system, I ask him to look through the American tax form.

Quite apart from that, there would be need for a very complicated assessment—a point which was recognised by my own organisation, the Association of Certified and Corporate Accountants, in a memorandum to the Estimates Committee which sat in 1960–61.

Again, bringing in such a system would introduce a new growth industry—that of tax form fillers. In America, many more than half the income tax forms are completed not by the taxpayers but by tax form fillers. Here the great majority of our 25 million taxpayers complete the forms themselves. They would not be able to do so with the American style form. Indeed, in the United States, this new industry advertises extensively on television. An article in The Times on 11th August said Over half of America's taxpayers seek professional help in filling in their forms …". It added that all sorts of firms were now getting on to the band wagon, and went on: Department stores like Montgomery Ward and Sears Roebuck are now offering a tax service … Naturally, the spivs are also on to it. The United States Government published an advice booklet. It can be purchased for 60 cents. It has been republished, with a flashy, four-colour cover, at a dollar or more by private interests. Yet the dollar edition sells well because the taxpayers who buy it think that the Government cannot be telling them about all the exemptions they can have. Perhaps those hon. Members opposite who are advocating commercial radio have in mind the use of it by tax form fillers advertising their ability to enable taxpayers to get through the complications of a self-assessment system.

I doubt whether this type of self-assessment would suit our mentality in this country, quite apart from its considerable complexity. I hope that the Financial Secretary can assure us that the Government have now rejected any idea of introducing the American type of system.

I hope also that the Government will not accept the demand in the Report for a breathing space. No Government should be prepared to put up with this sort of restraint on top of all the other restraints upon a Chancellor of the Exchequer. We may disagree with the Government politically, but we cannot accept that they or any Government should be constrained, in wanting to carry out tax reforms, by accepting the idea of a breathing space of, say, three or four years. I hope the Government will reform the taxation system, and no doubt I shall have my disagreements with them on aspects of such a reform, but I hope they will not allow themselves to be prevented from doing so by the idea of a breathing space.

7.10 p.m.

The Financial Secretary to the Treasury (Mr. Patrick Jenkin)

I was very glad that the hon. Member for The Hartlepools (Mr. Leadbitter) in his speech, most of which unfortunately I did not hear, paid a very well-deserved tribute to the Chairman of the Sub-Committee which made the Report. It is right that I should say that when Sir Eric Errington chaired the Committee he was not, for most of the time, in good health. The House stands very much in his debt. I echo what has been said by a number of hon. Members on both sides of the House by way of thanks to the witnesses from the Inland Revenue who devoted very many hours to answering the long and penetrating questions put by the members of the Committee.

The debate has had its moments. It has been without some of the moments which it might have had. The right hon. Member for Sowerby (Mr. Houghton) has sat on the Opposition Front Bench during the debate, his benign presence brooding over our deliberations. There must have been few of us who were not aware that he probably knows 10 times as much as any hon. or right hon. Member about the subject we are debating.

It seemed at times as if the debate was lapsing into a Budget debate. I was relieved that the hon. Member for Dudley (Dr. Gilbert) did not pursue his views about corporation tax and capital gains tax, but no doubt we shall be able to provide him with ample opportunities to do that in future.

Normally I should not have dealt with any of the points which were really budgetary points rather than points of procedure, but I should say a few words about the subject of alimony payments which was raised by the hon. Member for Clackmannan and East Stirlingshire (Mr. Douglas) and my hon. Friend the Member for Tynemouth (Dame Irene Ward). There is a good deal of misunderstanding about this matter, and perhaps I can try to make the position clear in two or three sentences.

If alimony due under a court order or agreement is not paid, the wife is perfectly entitled to ask for her Pas-As-You-Earn code number, if that is how she is taxed, to be adjusted. The Revenue will in general do that provided that it is satisfied that the failure to pay is not just a temporary, short-term interruption. The matter should be dealt with when the wife's income is assessed at the end of the year and the necessary adjustment made. If there is likely to be a continued failure she is perfectly entitled to have her code number adjusted so as to take account of the payments which are, or are likely to be, made.

Mr. Dalyell

As one of the hon. Members who raised this point, may I ask whether a circular could be sent to tax offices to make that clear?

Mr. Jenkin

I am sure that the officials of the Inland Revenue will have heard and will note what the hon. Gentleman has said.

Reference has been made to the question of the children's income. I must draw a very clear distinction between income paid under a court order to the mother by the father in respect of the children, and income paid direct to the children. In the first case, the income is, and always has been, regarded for tax purposes as the mother's income. It is the law. If the court ordered the income to be paid to the children, even though actual payment might be made to the mother or some other person on the children's behalf, it was regarded for many years as the children's income. The 1968 aggregation legislation made it the mother's income and aggregated it with her own. In many cases this brought into tax quite small court order payments to children. We have given a firm undertaking to repeal the 1968 legislation, and I am sure that the House would not expect me to say more about that matter now.

I will try to answer most of the questions raised in the debate. Perhaps I can begin by saying a few words about the staffing problem generally. It is worth reading the Committee's statement in paragraph 73 of its Report: In Your Committee's opinion there is no doubt that at present the Inland Revenue Department is understaffed and overworked. Serious as this situation admittedly is for the Department itself it is even more serious for the public as a whole. The errors and delays which result from it cause widespread distress and hardship for which there is no legal right of redress". The hon. Member for Ashton-under-Lyne (Mr. Sheldon) suggested, in the nicest possible way, that that was an exaggeration and was not supported by the evidence given to the Committee. I am bound to tell him, from the full and thorough investigations which my right hon. Friends and I made on moving into the Treasury after 18th June, that the position is no less serious now than that described in the Report. Further, there is no doubt that it represents one of the major constraints on our freedom of manœuvre, and certainly it is one of the unhappier legacies which the Government have inherited from their predecessors.

I must make it clear that the situation is not necessarily due to a failure to recruit at tax officer and tax officer (higher grade) levels. On 1st October this year, out of the establishment of the Inland Revenue we were only 238 bodies short. That represents a shortfall of 0.34 per cent., which I think the House will agree is minimal. But it was clear to us within a few days of taking office that, in spite of being numerically up to strength, the Department was short of the staff needed to administer the existing fiscal legislation, let alone to embark on reforms.

The hon. Member for Ashton-under-Lyne asked for the evidence of this. The Inland Revenue has a very simple test which has shown its usefulness over the years, namely, the arrears of post which have not been dealt with by tax officers. Last January, for the first time in the history of the Inland Revenue, the items of post over seven days old totalled more than 1 million. By November, and as a result of very substantial overtime work by officials in the Inland Revenue—and I express the Government's warm appreciation of their effort—it was reduced to just over half a million items. I am sure that the House will agree that this is still a very disturbing figure and represents considerable arrears of work, and—perhaps more important from the point of view of morale, an aspect of which I am very conscious—it must be disheartening for the staff at all levels. Because the staff are overburdened with work, there follows almost inexorably a mounting level of public criticism about the mistakes which inevitably occur.

It is not an exaggeration to say that in the two months after the General Election my office was swamped by a flood of letters from hon. Members on both sides of the House expressing constituents' complaints. That was immediately after the election when there had been a lacuna. But I am told, on making inquiries, that the rate at which I am now signing letters to hon. Members in reply to constituents' complaints is running at over 7,000 a year, represents a measure of the considerable public dissatisfaction about the matter we are discussing.

In addition, the Chairman of the Inland Revenue handles a large number of letters, and many hon. Members write direct to the local offices, which is much appreciated and which produces a quicker and more effective reply. I urge on hon. Members the view that this might be the most effective way of dealing with the matter, not because I am trying to slide out from under but because they will get a quicker service if they avoid writing to Somerset House.

One speaker in the debate said that this was, of course, the tip of the iceberg. To some extent this is right. There is, and I frankly concede it, a disquietening degree of public dissatisfaction. As I have said, I am acutely conscious of the effect of this on the morale of the Department. Nobody likes to work for a concern which is visibly finding it difficult to cope, and no one likes to go home at night knowing that there are piles of work left sitting on his desk to return to in the morning, and I have a very great deal of sympathy with the staff who face these conditions, and I am speaking, I am sure, for the whole House when I say that I applaud the loyalty and devotion of those who month in and month out continue to serve the public to the best of their ability.

Of course, a consequence, which is also a cause—there is an element of the vicious circle in this—is the high turnover of the executive and clerical grades. Indeed, the hon. and learned Member for Lincoln (Mr. Taverne) and the hon. Member for Dudley asked me about the management consultants' report. The management consultants, A.I.C., were engaged last June to survey the reasons for this high level of turnover. I may say that it was originally on the initiative of the staff associations that the suggestion was put forward, and, of course, it has enjoyed their full co-operation, which I very much welcome. This has involved a rigorous examination of the Department's personnel policies and is a very substantial survey of staff attitudes relating to such matters as job satisfaction, and so on. I was asked when the report will be available, and I can say almost any day now.

I was asked whether it would be published, and I am bound to say that this is more difficult. It has not been customary, as I said in answer to a Parliamentary Question by the hon. Member for New-castle-under-Lyme (Mr. Golding) in October, to make available to the general public copies of reports which have been commissioned for management purposes, and for the moment I find it difficult to see reasons why there should be a departure in this case. It is, after all, very important that people should give their answers freely and frankly knowing that those are going to be kept in reasonable confidence. However, I can say that the Department will pay the closest attention to any recommendations which may be made by the consultants in their report.

One of the consequences of the turnover—a number of hon. Members have referred to this—is the high percentage of trainees in the Department. I am sure the House will appreciate that, with the best will in the world one cannot expect a trainee to be as fully effective as a fully-trained tax officer, at least not for some while. This, of course, in turn puts a greater burden upon the supervisory staff and distracts them from their own case work.

One solution may be so to organise the Department that there is a pool of trainees of tax officer and tax officer higher grade level additional to the complement of staff in district tax offices. This is a matter which is under urgent study by the Government, and if there has to be some rise in the total numbers of the Inland Revenue—and I am bound to say that I say this with some bitterness—I hope the country will realise the cause and where some measure of the blame rightly belongs.

Mr. Bruce-Gardyne

Hear, hear.

Mr. Jenkin

I am grateful to my hon. Friend.

It is fair to say about the Report that a substantial part of the Committee's time and investigation was spent on what is the most critical and intractable long-term problem—namely recruitment and retention of staff for the inspectorate—and it is right, I think, to spend a minute or two on this. Everyone agrees that the job of tax inspector is a very demanding one calling for the highest qualities of character and intellect, and no one who has read the evidence of Mr. Scott, the then President of the Association of Inspectors of Taxes, could doubt that. Everyone agrees that in the last few years, and in the last six years in particular, a very heavy burden has been placed upon the inspectors by new legislation passed by this House. To quote the evidence of the memoranda of the A.I.T., paragraph 10: The Finance Acts of 1965 to 1968 laid upon the Chief Inspector's Branch additional and permanent responsibilities which can rarely have been imposed before on any Government Department. and since then, as my hon. Friend the Member for St. Marylebone (Mr. Kenneth Baker) reminded us, we have had disallowances of loan interest and a number of complex new anti-avoidance sections. I would honestly say to hon. Members opposite that they are deluding themselves if they believe this has not been a major cause of the present difficulties from which the Inland Revenue is suffering. I am very grateful to the hon. Member for The Hartlepools, who heard a great deal of the evidence given to the Committee, and I am sure he would not dissent from that.

Mr. Sheldon

The hon. Gentleman has adduced as evidence of overwork the backlog of letters as a major factor, which he himself has mentioned. Does he not understand that, following an election, it is quite normal for there to be a rise in the number of letters to Members of Parliament? My own correspondence, as a result, is very much greater—as a result of interest in these matters. The other point he referred to was the work caused by the extra imposition of the Finance Act, 1965. Does this mean that he has no reforms himself to introduce?

Mr. Jenkin

I am coming to that; but on the question of letters, I made it perfectly clear that it was during the most recent two months that I was signing letters at the annual rate of 7,000, and I specifically excluded the first two months after the election, because I would have expected them to be very much heavier then. After all, we are now six months away from the election.

To return to the inspectorate, here I dissent from one paragraph in the Report. I am sure we all agree that it is essential that we should not cut the standards of entry into this very exacting profession of tax inspector. If we did, we would risk reducing the quality of service to the taxpayer in what is a very sensitive area in relations between citizen and State, and it might result in the failure to implement decisions of the House.

How are we going to remedy this difficulty about inspectors? There are two main sources of recruitment to the inspectorate, graduates from the universities and promotion from the grade of tax officer higher grade. I would stress that both are essential in order to get the numbers and in order to provide proper career opportunities for these tax officers higher grade and for graduates and to ensure that we have sufficient entrants with first-class brains to fill top posts in future decades. I would endorse very much what was said by the hon. and learned Member for Lincoln in the tri- butes he paid to the staff associations and the quality of the top management of the Inland Revenue. Anybody who has had any dealings with them would thoroughly endorse that.

The Estimates Committee made a very intensive study of this problem and made a number of useful recommendations. It made clear that full-trained inspectors, who are, as it were, the top level of the inspectorate, numbered rather fewer than 2,000 in the whole Inland Revenue staff, which, at the moment, is just under 70,000. The current shortage in posts where full training is required is about 130 to 140, which is quite a considerable number.

Looking first to graduate entry, when the Committee made its study the annual intake was 60, achieved in only two years during the whole of the decade of the 'sixties, and, as someone said in the debate, Sir Leonard Barford said: We take everybody who reaches our qualifying standard who will come. The Committee recognised that this had to be stepped up and made suggestions for a more dynamic approach to recruiting. It suggested first that university recruitment should be the job of specially trained personnel officers. The White Paper makes it clear—and perhaps I can here answer the hon. Member for Dudley—that a new recruitment section has been set up at headquarters, and since then we have increased the target from 60 to 100. A major new effort is now being made to put across the attractions of a career in the inspectorate. This is not confined to the universities. I can tell the hon. Member for East Stirlingshire that liaison officers, as well as being appointed to universities, are also being appointed to polytechnics. We intend to spread the net as wide as we can to get men and women of the ability we need.

The Committee suggested that there should be a review of advertising, with much greater emphasis on professional qualifications. I have no doubt that a number of hon. Members have seen the attractive advertisements which now appear in appropriate journals that reach people contemplating a career. The results, I am happy to say, have been encouraging. In the most recent year ended 30th October, 1970, we had over 100 successes in the tests and interviews compared with 60 the year before, and the Inland Revenue is confident that we shall reach the target of 100 new entrants. We have now raised our sights. We are next year looking for 125, and there is every reason to hope that this too will be achieved. This is for a job that requires a five-year training period. If I may say so, with the greatest respect to the hon. Member for The Hartlepools we are not training plumbers. We are training men whose attainments, skills and knowledge require a full five-year period. No one has suggested that the training could be achieved in less—

Mr. Leadbitter

I hope that, on reflection, the Financial Secretary will consider that to be an unfair point. I was explaining to the House that there are new approaches to this problem now. I was not saying that we had or should have plumbers in the Inland Revenue service.

Mr. Jenkin

I was not suggesting that. A five-year apprenticeship to become a plumber is and has always been recognised as a protective practice in the plumbing trade, but it is not the same for a tax inspector.

The Committee stressed the importance of removing material and psychological barriers, and referred to the old view, which crops up again and again in the evidence, that the inspectorate was a second best after the Administrative grade of the Civil Service. This is emphasised by the ludicrous £10 a year difference in the salary paid to a new entrant.

This is on its way out. There are to be major improvements in pay for the direct entrant inspector under training, payable as from next January, although, because the whole pay is under review, the actual date of first payment may be a little later than that. The direct entrant inspector under training will be brought into line with the administration trainee grade which is emerging from the Fulton Report. Furthermore, there will be substantial improvements by way of increments and allowances to these entrants on passing examinations.

These changes should ensure that the pay scale for the graduate entrant will be fully competitive with that of many other occupations which will be appealing to him. The Fulton reforms in the system of recruiting graduates as adminis- tration trainees will apply equally to inspectorate entrants. Under these arrangements graduates will have the choice of going either into the inspectorate or into the general administration, depending on their preference and suitability. The House will agree that these reforms will go a long way—indeed, we hope they will go the whole way—to remove what the Committee referred to as the "second best" image, and will in time make a significant contribution to easing the chronic shortage of fully trained inspectors.

Mr. Dalyell

Before the Financial Secretary leaves recruitment, will he say something about recruitment from the Services?

Mr. Jenkin

I am coming to that. I will deal first with promotion from the inside and then with two brief points on recruitment.

On the other avenue of entry, promotion from tax officer higher grade, the Committee recognises that there have to be two stages. It is necessary to recruit to the Inland Revenue as tax officer higher grade men with the right qualifications who can go on for training as inspector; it is necessary then to select them and train them, or at any rate, those of them who show sufficient promise, to be promoted to inspector. It was the latter part, the selection and training, which was the major concern of the staff federation.

The Committee recognises that on the initial recruitment the key lies in getting people from the sixth forms of schools, and the Inland Revenue has followed this up with considerable vigour. A major effort is being put into it. There was a pilot scheme earlier this year in the North-West, and other schemes have been launched in Cardiff and Manchester. As a result, the recruitment of tax officers higher grade in 1970 is now running far ahead of 1969. The figures will show the improvement. The target for recruitment has been increased from 520 to 1,300. Candidates who have been assigned so far are 950, compared with 350 in the previous year, and those who have actually taken up duty, up to last Friday, number 685, compared with 285. I think the House will agree that these are encouraging figures. I find it difficult to believe that there are not quite a number of potential inspectors in that lot.

The Committee was much concerned, as indeed were hon. Members, with the long delays before the process of selection starts. The Committee recommended that the six-year wait between entry and embarking on the modified training should be reduced, and that the further four years before full training can start should be reduced. To take the four-year period first. This is after a man has become a tax inspector, grade III, and wants to go on to take the full training. Since the Committee reported, the Inland Revenue has begun to introduce a new training scheme leading to qualification as full inspector. Tax officers higher grade who achieve a sufficiently high standard in their preliminary training will go straight on to complete their full training with no wait at all. For those who do not qualify in this accelerated training, the waiting period before the review has been reduced from four to perhaps two and a half years.

The earlier stage, the six-year period, to which the hon. and learned Member for Lincoln and other hon. Members referred, is more complex. The Inland Revenue give reasons for this in its observations, stressing not only the two-year initial training period for a tax officer higher grade but also the fact that he needs to gain experience on the job before embarking on the more strenuous training to be an inspector. There has in the past been a complication that it has always been felt undesirable to narrow the distinction between the tax officer higher grade who proceeds by way of the limited inspector competition, which is a competive examination, and the tax officer who waits for selection. However, as a result of the Fulton Report, the limited inspector competition is likely to be abolished with the introduction of the new administration trainee competition. This Fulton development provides a gateway both for new graduate entrants and for existing staff under the age of 32. The only qualification is that they have to have two years' service.

Success in the administration training competition will enable tax officers higher grade to gain entry not only into the inspectorate but into other Departments of the Civil Service if they wish to. Thus, it provides a new avenue for advancement for "high flier" who enters the Inland Revenue as a tax officer higher grade. If he feels he does not want to attempt the examination, entry by selection is still open to him, but the six-year period obtains. It is certainly not the law of the Medes and Persians that it should be six years for all time. We recognise that conditions are changing, and I give an undertaking that it will be reviewed in due course.

There are two other recommendations—and here I come to the point made by the hon. Member for West Lothian (Mr. Dalyell)—one of which was accepted and the other not accepted. The Inland Revenue has accepted that ex-Service officers could be a useful source of recruitment to the inspectorate and has produced a pamphlet called "A Second Career—A Second Command". Liaison arrangements are being established with units in the forces to seek to interest officers who are retiring at 40 or thereabouts in taking training as a tax inspector. The emphasis has been on the early stage at which a trained inspector achieves his own command and is in charge of a tax district.

The recommendation which we cannot accept at this stage is the one about selecting sixth formers for university bursaries and seeing them through university. We believe that the contribution this might make to recruitment to the inspectorate is speculative. It has not been possible to assess how many would be attracted, or how many would be secured after taking their degree.

It is interesting to note that in his evidence the right hon. Member for Sowerby reached the same conclusion, although for a somewhat different reason. He laid emphasis on the distinction between the graduate entrant and the entrant by promotion, and he felt that there would be an unfortunate discrimination against the latter if there were an intermediate position for somebody who began as a tax officer higher grade and got through the graduate loophole. I have discussed this with the Inland Revenue and it endorses what he said; so we have not felt able to accept that one.

To summarise on the question of the inspectorate, the Government fully share the Committee's concern. We accept most but not all of its recommendations, and are encouraged by the improved selection and recruiting so far. It will be a few years before we really begin to feel the benefits.

I now turn to the problem of mechanisation and computers. I shall deal generally with the position, and then with East Kilbride in particular. I welcome this chance to comment on a very major development for the Inland Revenue. I acknowledge the disquiet that has undoubtedly been felt in Scotland, and I shall answer some of the specific points that have been made.

I do not need to dwell on the history, because it is well set out in the lengthy memorandum from the Inland Revenue, on page 206 of the evidence. Nor do I need to describe in detail the set-up at the new computer centre, although I could reinforce the invitation that the Inland Revenue has extended to all hon. Members—not only to those from Scottish constituencies—to visit Centre One at East Kilbride at any time they want to.

The study goes back to 1957. Eventually the idea of nine computer centres throughout the country emerged, and East Kilbride is the first. It involves concentrating the records of about 80,000 employers and 2 million taxpayers into one centre, and also a running record of every taxpayer and employer on magnetic tape. I am fascinated to realise that each taxpayer occupies about half an inch of magnetic tape, and that the record is up-dated daily by feeding in the changes. Coding, assessing, and so on are done by the computer.

I was asked about security. Here I can give a firm commitment. There are no remote access terminals to the computer. The only access is via the computer input equipment at the centre, and the Inland Revenue believes that it is as secure as any computer installation can be. It is very much part of the bedrock philosophy of the Inland Revenue that an individual taxpayer's affairs should be treated with the utmost sanctity, and anybody who has sought to obtain statistics based on individual cases will have realised how stoutly the Inland Revenue resists any such approach.

In view of the points made by my hon. Friend the Member for South Angus and other hon. Members, I want to draw attention to three cardinal features about this computerisation programme. First, as with all major reorganisations, the main constraints are inevitably people. In this case I refer to the staff. It is not too hard to commission and programme a computer; it is not impossible progressively to concentrate files and extract key data and put them on punched tape. But to run down over 40 P.A.Y.E. centres all over Scotland and to concentrate their staffs in one location—there are 1,653 on the staff as East Kilbride—is a massive operation of great complexity. When, in addition, we have to maintain complete continuity for every employer and taxpayer throughout, the House will begin to realise some of the problems involved.

One consequence has been that inevitably a high proportion of new staff has had to be recruited to staff East Kilbride, and to begin with they are inevitably inexperienced. We have 172 trainee tax officers and 46 tax officers, higher grade, under training at East Kilbride.

The second point is that entirely new procedures had to be learned, even by existing staff. The system is quite different from that of a normal district office. Employees are grouped not by employers but by their National Insurance numbers. A separate employers' unit deals with employers. The tax officer for the employees no longer deals direct with employers but via the unit at East Kilbride. Tax officers must be familiar with input and output techniques, coding, and so on. This means that they have to learn many new procedures and forget much of what they were trained on in their earlier district offices.

The third and more immediately relevant point to hon. Members—particularly to my hon. Friend the Member for South Angus, to whose pleas I have listened with much sympathy—is the effect on the public and the taxpayer. Instead of his having a local office to deal with in the town where he works, the taxpayer's affairs are handled at a distant office in a way that often seems remote and impersonal. I entirely understand that this might be even less bearable when letters go unanswered and when telephone calls seem to produce no results—when months pass and one's affairs seem to be neglected.

On the question of replying to correspondence, I cannot do more than say that the Inland Revenue is doing its best. There is a standing instruction to all staff that letters which cannot be dealt with within seven days must have an interim reply, and staff are regularly reminded about the need for this. I equally recognise that on occasions this does not happen. I can only put it down to the inevitable human failures that will always occur in any organisation that has to deal with large numbers of people. We entirely accept the need for constant vigilance in acknowledging taxpayers' letters.

The centre went through a rough period in the middle months of this year, after it became operational in March. This caused widespread concern, of which certain newspapers in Scotland made the most. I am satisfied that it is now getting a great deal better. I visited Centre One in September. 1 found the staff—and I think that hon. Members will have had the same experience—far from complacent, but gaining confidence that they were overcoming their difficulties.

The delays, as measured by the post outstanding, compares well with the Inland Revenue as a whole, although I agree that it is not a particularly satisfactory situation. The level of serious complaints, as evidenced by complaints made to me, other Treasury Ministers or to the Chairman of the Inland Revenue, is falling, and, although we have some way to go, I can assure the House that there is great determination at East Kilbride to provide the standard of service to which Scottish taxpayers are fully entitled.

Mr. Bruce-Gardyne

Can my hon. Friend give the House an assurance that we shall not proceed with the establishment of further centres—I believe that Bootle is to he the first—until we are sure that we have got to the bottom of the problems that have beset East Kilbride?

Mr. Jenkin

I shall have something to say on that point.

Mr. Dalyell

Will the Minister also deal with the question of telephone calls?

Mr. Jenkin

I am coming to that at once. I was dealing with access to the computer centre. There have been established at Glasgow and Edinburgh two principal inquiry offices which deal with a large number of personal inquiries and are linked by telex to East Kilbride. Also, in many towns there are local inquiry offices at the existing district offices which continue to deal with other tax matters, such as Schedule D and so on.

We have found that the great majority of calls at these district offices can be dealt with quite happily without reference to East Kilbride. Somebody may want a form to report the birth of a child, or to get married, or to make an inquiry about such matters. Where it is necessary to refer to a taxpayer's own records, if people give a few days' notice of their intention to call at the district office the file can be obtained and there will be an officer to discuss his affairs with the taxpayer in person. I hope that taxpayers will feel that this is at any rate some measure of contact.

There are a great many callers at East Kilbride itself: every 20 minutes a bus coming out from Glasgow deposits a new group of taxpayers anxious to pursue their inquiries with a battery of tax officers awaiting in the inquiry office there. But we always recognised that remoteness was a major disadvantage of computerization, and the Inland Revenue has now for some time had a working party looking into the whole question of P.A.Y.E. inquiry facilities, the adequacy of existing arrangements, whether proper publicity is being given to them and whether improvements are necessary.

The hon. Member for West Lothian mentioned telephone contact. He will know that when the first tax districts, dealing with taxpayers in London, moved out of London to the provinces the Inland Revenue initially made use of the free phone facilities. The difficulty with this facility was that it proved to be very expensive even when available only to employers. The hon. Gentleman also asked about abuse of the facility. Although the abuse was not great, and I would not seek to put much weight on it, there were employees who learned the number and were thus able to make free telephone calls themselves to which they were not entitled, although they were entitled to make calls for the cost of a local call.

As we see this concentration develop, the cost of a free phone service could become very considerable, and I will only say now that the working party will give very close consideration to what the Select Committee recommended. We are anxious that taxpayers should have all reasonable facilities for making contact with the computer centre, but this must have some regard to the cost.

The hon. Member for East Stirlingshire asked about centralisation with the collecting offices. As the Report makes clear, it is intended that the centralised collecting offices should be linked with the computer centres, but there is always a need for local collecting officers because there are always those taxpayers who will not pay until someone knocks at their door and says that if they do not pay the bailiffs will come in. Although the number of such taxpayers is few, they are there.

The Committee recommended that we should take the advice of outside experts in order to be able to keep up to date and take full advantage of the latest developments. The Board of Inland Revenue has accepted the recommendation. A review committee began work in April. It includes outside management consultants as well as representatives of the Department of Social Services, the Civil Service Department and the Department of Trade and Industry. Although it is early days yet, I have no doubt that the review committee will prove most helpful.

Simplification and staffing were subjects referred to by a number of hon. Members, including the hon. and learned Member for Lincoln, who thought that the remedy for the Inland Revenue's difficulties was simplification of the system, and, if I may say so, this is absolutely right. We must reverse the pattern of recent years where we had complexity piled on complexity, where tax offices were swamped, where the public became bemused and where the standard of the Inland Revenue service and the tax morality of the taxpayer declined.

This Government were elected on a pledge to reduce direct taxation and to reform and simplify the tax system, and I can state categorically that this remains our policy. We have already made a start, in a different field, with the new system of capital allowances—the 60 per cent. accelerated depreciation and the universal 25 per cent. reducing balance—which has been widely welcomed.

Simplification of the pattern of capital allowances will ease problems both for tax officers and for businessmen.

However, as many hon. Members have recognised this evening, simplification is not easy or painless—there is the age-old conflict between simplicity and equity to which a number of hon. Members referred—but I have no doubt whatever that in the last six years in particular the pursuit of absolute equity has gone to unacceptable lengths. The system becomes so complex that it is understood only by the tax expert and that in itself militates against equity. It has put a premium on good advice, and this cannot be right. I am sure that we are right to look for greater simplicity, even at the expense—and I was interested to hear the hon. and learned Member say it—of a few rough edges.

The second point here is that it is essential to recognise that simplification cannot satisfactorily be achieved without structural reforms. Such reforms take time to plan, time to introduce and time to implement, and I obviously cannot say anything about this aspect in detail tonight. Nevertheless, I entirely reject the point made by the hon. Member for Ashton-under-Lyne that the Report in some way represents an overriding restraint upon tax reform. This has certainly not been the view put to us by the Inland Revenue. Yes, there are certain limited constraints of timing, and this we must recognise, but it certainly will not stop the Government's tax reform programme. But these are budgetary matters, and even if we want more consultation on reforms than has taken place in the past I must ask the House to await my right hon. Friend's Budget Statement.

But I can assure the House that no reasonable proposal for simplification is being neglected in our studies including, I might say, self assessment, although the hon. Member for Heywood and Royton (Mr. Barnett) did not think much of it, while the hon. Member for Dudley asked us to introduce it. We have made a lot of pretty thorough investigations into the tax system in the last five years. It is possible that simplification may involve changes in the computer profile, and until proposals under review are further advanced we would not want to become committed to further computerisation or mechanisation. Our work on simplification necessarily includes a review of mechanisation, so work on the programmes other than that on the two computer centres being built is largely to be suspended for the time being.

I was interested to hear what the hon. and learned Gentleman said about an independent inquiry for the purpose of simplifying and remodelling our tax system. Without wishing to be guilty of any discourtesy to the Estimates Committee, I might say that this is not a new suggestion, nor is it a practicable suggestion. My hon. Friend the Member for Tynemouth (Dame Irene Ward) was, if I may say so, entirely right in this context to refer to the work of the Procedure Committee. I think that we had better await the Report of that Committee before taking this matter further. In addition, there is the unofficial committee—the so-called tax simplification committee to which the hon. and learned Member referred—and we are looking forward to receiving that committee's unofficial report.

The Estimates Committee heard a great deal of evidence, much of which repays detailed study, and made a lot of useful recommendations, but, as the Committee itself recognised, its proposals did not purport to be the answers to all the Inland Revenue's problems. Nor were they. We are faced with an over-complicated tax system, an over-stretched tax-gathering machine and an over-taxed citizenry. It is not to be expected that these ills can he put right overnight. Tax reform, tax reduction, tax simplification are among the prime objectives of the Government, and in our period of office we intend to make substantial progress on all three.

Question put and agreed to.

Resolved, That this House takes note of the Fifth Report from the Estimates Committee in Session 1968–69 and of the related Departmental Observations. (Command Paper No. 4314.)