Debt Recovery (Hansard, 10 July 1997)

§ Miss Ann Widdecombe (Maidstone and The Weald)
I should first say how grateful I am to Madam Speaker for selecting this topic for debate.
I am bringing before the House my concerns about the debt recovery practices of the Inland Revenue and, more particularly, Customs and Excise, as, over the 10 years during which I have represented Maidstone, I have become troubled by a steady stream of constituents' experiences. They have explained to me that, when they make reasonable offers to Customs and Excise and also, occasionally, to the Inland Revenue, those offers are turned down and instead those bodies move immediately for bankruptcy.
My concern is not just for my constituents, but for value to the taxpayer. Clearly, it is to the greater benefit of the taxpayer if a business that is in trouble can make fairly modest but nevertheless steady payments than if that business is bankrupted, immediately unable to operate and, when there are no assets at all, the taxpayer makes no recovery.
Although I appreciate that, occasionally, difficult decisions have to be made, the cases that I have had cause either to write about to successive Ministers or to bring to the attention of either the Inland Revenue or Customs and Excise are fairly clear. I have begun to fear that there may be two sorts of businesses in trouble: the ones that have obtained the intervention of their Member of Parliament and those that have not. I find that, when I intervene, very often some arrangement that hitherto has been deemed wholly unacceptable is suddenly found to be acceptable and put in place.
In respect of the case to which I am about to refer, my constituent wrote to me and I raised the matter with Customs and Excise. I was told that my constituent's proposal was completely unacceptable, that the case had been dealt with properly and that, as the major preferential creditors, Customs and Excise were going to vote against accepting a revised agreement. I responded immediately to that letter by saying that I noted their position, but because the case was one in a long line, I intended to raise the matter in Parliament. Suddenly and within 48 hours, my constituent's offer had, strangely, become acceptable.
I am concerned that taxpayers' interests should be protected, but their interests are not protected reasonable offers are turned down. I shall now refer to the specific case of the most recent, but by no means the only, constituent to bring such a problem to me. To save him embarrassment, I shall refer to him as Mr. X. He wrote to me, saying that he had found himself in a serious situation as a result of decisions taken by Customs and Excise. Between 1993 and 1995, he worked on a self-employed basis. His business was successful, it expanded and he took on various subcontractors. However, during 1995, he began to encounter serious financial problems. He was dealing with several clients who went into liquidation, leaving him with unpaid debts of many thousands of pounds and a resultant poor cash flow, especially as other clients paid their invoices many weeks after they were due. In addition, he claimed that he was also subject to 1172 malicious action by some of the subcontractors, who were trying to form their own company in direct competition to him.
As a result, in September 1995, my constituent entered into an individual voluntary arrangement in Tunbridge Wells county court. Virtually all his creditors accepted that the problems were not of his making and proposals were approved whereby he would pay to the appointed supervisor £1,000 a month for four years in full and final settlement of all debts. Mr. X found that£1,000 a month proved to be more than he could realistically afford, so the supervisor appointed under the voluntary arrangement suggested that it would be reasonable to write to the creditors to propose a reduction in his monthly payment to £500. That £500 a month was still being offered to his creditors, and the taxpayer, through Customs and Excise, would have benefited from it.
The supervisor duly sent out the appropriate letters and voting forms to the creditors and almost all of them accepted that the reduction was reasonable. One creditor did not—Customs and Excise, the largest creditor. Out of approximately £80,000 in total debt, Customs and Excise's debt was registered at some £50,000, although the accuracy of that figure was disputed with my constituent's accountant.
As Mr. X pointed out, the result of Customs and Excise's decision not to accept the voluntary payments could be that he would go bankrupt, lose his current employment and have great difficulty finding other employment. More important, not one of the creditors, including Customs and Excise, would receive any payment of any part of their debt. Therefore, the decision made by Customs and Excise, he believed, was not in the interests of any of the creditors or the Crown. I am inclined to agree with him.
Mr. X told me that he spoke to his supervisor and she told him that it was interesting to note that all the creditors who were personally affected voted in his favour, and only Customs and Excise voted against. She pointed out that the money was not personally owed to Customs and Excise staff and they had nothing to lose. She added that that was often the way in which Customs and Excise dealt with such matters, because they would rather just get people out of the way. Mr. X was concerned and puzzled by the decision. He did not understand how Customs and Excise could preside over a situation in which everyone lost out.
I contacted Customs and Excise about a letter from my constituent, dated 11 June. After a series of telephone calls, Customs and Excise wrote to me on 17 June to say that they were satisfied that the proposals were considered on their merits and that the decision to reject the offer was correct. They went on to explain the background. In a further letter, Customs and Excise explained, I think rather tellingly, that they supported the arrangement— after I had said that I intended to raise the matter in Parliament. They went on to say that there had been no distribution of the funds paid into the arrangement.
The supervisor's remuneration had to be paid, and a sum of £1,000 had been set aside to enable the supervisor to petition for bankruptcy if the arrangement failed. That is not unusual. My experience of constituents in trouble is that, regularly, receivers' fees, supervisors' fees and the general costs of insolvency practice amount 1173 to such a large sum that it seriously erodes the amount recovered by creditors, and places an ensuing larger burden on constituents.
I wish to ask the Minister some straightforward questions. I acknowledge that she is the latest in a long line of Ministers whom I have asked these questions, and I have no great hope that her answers will be any different. Nevertheless, the public should hear them. Is it the duty of both the Inland Revenue and Customs and Excise to act in the interests of the taxpayer and, by acting in those interests, is it their duty to maximise the amount that the taxpayer recovers? Is that their guiding principle? Will the Minister ensure that it is their guiding principle? If so, it is difficult to see how they can so often refuse admittedly modest offers, which nevertheless would result in some repayment for the taxpayer. Are there any plans to limit the amount taken by receivers, supervisors and others involved in insolvency practice, so that creditors get the benefit of any moneys that businesses or individuals in trouble may be able to pay?
Had this been an isolated case, I should not be raising the issue tonight, but it is far from an isolated case. I shall not say that such cases come before me every week, as they do not. However, they do come up every few months, and they always have the same outcome—intervention nearly always results in the offer that was previously deemed unacceptable suddenly becoming acceptable. There is a real public interest in the issue. When I said that I was raising it tonight, I immediately became the recipient of numerous tales of woe from up and down the country, of which I will spare the Minister the details. I should be grateful for her observations on the principal questions that I have asked.

§ The Financial Secretary to the Treasury (Dawn Primarolo)
I am grateful for the opportunity of answering the right hon. Member for Maidstone and The Weald (Miss Widdecombe), and I shall do my best to deal with the points she has raised.
The first point that needs to be made is that the Inland Revenue and Customs and Excise use their powers to enforce payment of debt only in respect of tax that the law says is collectable. The money does not belong to the business concerned, but is money that the business has collected which belongs to the taxpayer.
The right hon. Member raised a number of concerns which I know trouble many hon. Members. I, too, have been involved on behalf of my constituents in the type of negotiations that the right hon. Lady described.
The first question is whether the likely solution of cases is improved by the intervention of a Member of Parliament. The second is whether reasonable offers are being accepted. The right hon. Lady referred to a specific case. I am sure that she will furtive me if I do not refer in detail to that case, as I do not have all the details and, frankly, I do not think that it would be proper of me to do so in the House.
The right hon. Lady mentioned the duty of the Inland Revenue and the Customs to maximise their return and asked what were the guiding principles. They are, first, that the system has to be fair to all taxpayers. It has to be fair to businesses that pay their taxes on time. Those that delay paying their taxes, therefore, have an unfair commercial advantage.
1174 I must briefly point out the Government's attitude to such issues. I fully understand—so do the Government— that it benefits no one, least of all the Exchequer, to close down businesses that could have continued, despite the fact that they might owe substantial amounts of taxpayers' money to the Revenue. At the same time, however, Customs and the Inland Revenue have a statutory duty to collect all those taxes that are legally required to be collected.
The decision as to how those are to be balanced is difficult. As I said, allowing consistent late payment by businesses—we are talking about the small proportion that find themselves in this difficult situation—could confer unfair advantages on them, and the Department has a duty to ensure that it is fair to all businesses in the way in which it collects taxes.
We recognise that some taxpayers sometimes have problems with their cash flow. The policy of the Revenue and Customs is to take a positive approach and to try to work with individuals and businesses that are experiencing genuine short-term difficulties. That policy relies on the companies disclosing the information either to Customs or the Revenue and asking for assistance so that they can develop a voluntary payment plan. If the companies fail to do so, it is hardly fair to criticise the Revenue departments for not having all the information.
I am sure that the right hon. Lady would agree that sometimes it would be more helpful if our constituents disclosed more information about the true position of their companies at the beginning, rather than halfway through the negotiations.
It is important that Customs and the Revenue are acquainted with the problems and are thus able to assist. Obviously, both the departments appreciate the personal tragedy when bankruptcy is looming. The idea that they somehow enter into this with great glee to undermine and destroy businesses is unfair on the officials, who are following through the requirements of Parliament that they should collect the tax.

§ Miss Widdecombe
Nothing in my speech suggested that they entered into this with glee. There seems a pattern, however, of preferring to get things off their books—not necessarily with glee, but certainly with relief—rather than administering more modest and more realistic payments, which nevertheless return something to the taxpayer.

§ Dawn Primarolo
I accept the right hon. Lady's point. I do not agree that the departments have a strategy of getting problematic cases out of their hair and off the books, because they appreciate, as any sensible person would, that it is better to get some money than none, but a decision eventually has to be made about whether a business is viable and able to repay the moneys or will constantly accumulate greater debt and have an unfair position over other taxpayers.
I intended to outline the details of the decisions on debt collection, but I realise that the right hon. Lady is fully acquainted with the facts through her constituency work, so I will not delay the House on that matter. The two Revenue departments have to balance getting the tax that Parliament requires against a judgment about assisting a business to survive—because it is clearly in all our interests that businesses should continue—while 1175 considering the question of fairness to all taxpayers. It is not as simple as maximising the tax return—would that it was—but the points that the right hon. Lady made are taken on board.
The right hon. Lady asked about reviews of fees taken by insolvency advisers, receivers and others. Those are a matter for Ministers at the Department of Trade and Industry, but I will ensure that her comments are passed on to the relevant Minister.

§ Mr. John Burnett (Torridge and West Devon)
As the Minister probably knows only too well, there is a system for lawyers to have their fees taxed. Without wanting to put words into the mouth of the right hon. Member for Maidstone and The Weald (Miss Widdecombe), I wonder whether the Minister might suggest to the Department of Trade and Industry that such a system could be made available in the case of insolvency practitioners.

§ Dawn Primarolo
I will certainly make sure that the hon. Gentleman's comments are drawn to the attention of 1176 the Ministers concerned, but I am sure that he would not expect me to make policy off the cuff this evening on an extremely important matter.
Although not many hon. Members are present in the House, I am sure that others will study Hansard because of the relevance to their constituencies and their experience with constituents. The area of operation of the two Revenue departments is always carefully considered and assessed. I should be happy to review in correspondence the details of the specific case that the right hon. Lady mentioned and any other relevant issues that she wants me to take up.
The Government and the Revenue departments take these matters extremely seriously and our objective must be to assist businesses while not allowing them to have an unfair advantage over other businesses or to cheat the taxpayers of money that is rightly theirs.