Grand Committee Report of 2 March 2005

Official Report of the Grand Committee on the Commissioners for Revenue and Customs Bill
(Third Day)
Wednesday, 2 March 2005.

Official Report of the Grand Committee on the Commissioners for Revenue and Customs Bill

  The Committee met at half past three of the clock.
  [The Deputy Chairman of Committees (Lord Tordoff) in the Chair.]
  The Deputy Chairman of Committees (Lord Tordoff): If we are all sitting comfortably, we can begin.
  Clause 21 [Disclosure to prosecuting authority]:
  [Amendments Nos. 48 and 49 not moved.]
  Clause 21 agreed to.
  Clauses 22 and 23 agreed to.
  The Earl of Northeskmoved Amendment No. 50:
  After Clause 23, insert the following new clause—
  "INFORMATION COMMISSIONER'S REPORT
  (1) The Information Commissioner shall keep under review the exercise and performance of the powers and duties conferred or imposed by or under sections 17 to 23 by the persons on whom they are conferred or imposed.
  (2) It shall be the duty of those persons on whom powers and duties are conferred or imposed by or under sections 17 to 23 to provide the Information Commissioner with all such information as he may require for carrying out his duties as mentioned in subsection (1).
  (3) The Treasury shall—

  (a) after consultation with the Information Commissioner, and

  (b) subject to their approval as to numbers,

  provide the Commissioner with such staff as is considered necessary for the discharge of his duties under this section.
  (4) As soon as practicable after the end of each calendar year, the information Commissioner must lay before Parliament a report about the carrying out of his duties under subsection (1)."
  The noble Earl said: I should begin by apologising to the Committee for my absence last Thursday. By way of explanation I was attending the winter meeting at the parliamentary assembly of the Organisation for Security and Co-operation in Europe in Vienna. Looking on the bright side, the Committee was graced with the much more expert, not to say eloquent, oratory of my noble friend Lord Kingsland as my substitute. For the record I should like to express my gratitude to him for moving my various amendments with his customary skill and flair.
  Needless to say, I have read the Official Report of the Committee's proceedings. Indeed, having done so, and again by way of explanation, that enabled me not to move the previous two amendments in my name. So
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  far as they are concerned, the response of the noble and learned Lord the Attorney-General to Amendments Nos. 41 and 42 offered me adequate reassurance.
  As to this amendment, evidently its purpose is to ensure that the disclosure regime operated by HMRC is subject to the external and independent oversight of the Information Commissioner. In so doing, it conforms with the paragraph 1.33 recommendation of the Joint Committee on Human Rights; namely:
  "In our view, there is a need for disclosure of confidential information by HMRC to be carefully monitored and the exercise of the power to disclose made subject to external oversight by an independent body (such as the Information Commissioner) capable of ensuring that in practice rigorous procedural safeguards are applied when deciding whether or not to disclose confidential information".
  Bluntly, I cannot improve on that as an eloquent and clear argument in favour of the new clause. Indeed, as my noble friend Lord Kingsland suggested with Amendment No. 43 last Thursday, I would hope that the noble and learned Lord the Attorney-General would consider the proposition to be wholly unexceptionable and unobjectionable.
  That said, I suspect that, as the noble and learned Lord argued in the context of Amendment No. 43, he will seek to suggest that the presence of Clause 22 renders the amendment unnecessary. Of course, I recognise that this ensures the involvement of the Information Commissioner in the disclosure regime, but I suggest that the amendment would stretch that involvement rather further than would ordinarily be permitted under the terms of the Data Protection Act. That Act states at Section 52:
  "The Commissioner may from time to time lay before each House of Parliament such other reports with respect to those functions as he thinks fit".
  The provision to prepare a report is therefore permissive rather than, as at subsection (4) of the amendment, compulsory. To my mind, this more properly reflects the importance that should be attached to the confidentiality of taxpayer information and the significance of its role in protecting the tax base. Moreover, the amendment at subsection (3) seeks to ensure that adequate resources are made available to the Information Commissioner to perform the relevant duties.
  Albeit that I have lifted the text from other statute, I freely concede that my drafting here may be somewhat less than perfect. Nevertheless, for me there is an important point of principle here. It is sanitary to reflect the extent to which the functions of the Information Commissioner have expanded since the establishment of his office in 1998. For example. I think I am right in saying that oversight of Part 1 of the Regulation of Investigatory Powers Act and of the freedom of information regime has been added to his brief. However, I am less certain that there has been a commensurate increase in the resources and funding available to him—a case perhaps of willing the ends and not the means. In other words, my aim with the

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  amendment is to seek to ensure that sufficient resources are made available for his intended duties to be performed adequately and properly. I beg to move.
  Lord Campbell of Alloway: I support the amendment. It implements the recommendations of the Joint Committee on Human Rights. Whether that is necessary is a matter for the House. I need say no more about it. I am not here today to argue necessity.
  The substance of the amendment will complement amendments proposed to be tabled on Report, which I have discussed informally with the noble and learned Lord the Attorney-General and with my noble friend Lord Kingsland, to bring on to the face of the Bill safeguards in accordance with the recommendations of the Joint Committee on Human Rights. I suggested to the noble and learned Lord that he could not possibly agree with these amendments and I think that he rather accepted that. But, again, that is a matter for the House. While I am here, I want to express my gratitude to the noble and learned Lord for the courteous and constructive way in which he demolished my amendments on the previous occasion.
  This amendment, even if my amendment on Report were not accepted, to which it would be complementary in its own right, should stand.
  Baroness Noakes: Before I make a few brief remarks about my noble friend's amendment, I want first to return to a matter which arose earlier in Grand Committee; namely, the meeting held on 8 February. I apologise to the noble and learned Lord and to his officials because there was notification of that meeting in our party notice. However, for some reason neither I, nor the researcher allocated to the Bill, nor my Whip noticed it. I cannot explain that collective act of negligence, but the meeting occurred. That led me to criticise the noble and learned Lord and I wish unreservedly to apologise for that.
  Turning to the amendment, we debated Clauses 18 to 20 on our second Committee day. There were many problems and the noble and learned Lord will be aware that we are seeking further safeguards to be built into those clauses. In the absence of those safeguards, a report such as this becomes essential to ensure that the right kind of public spotlight is focused on the potential use of such important powers. Even if the Government were to agree that some safeguards should appear in the Bill, one would still say that a report was necessary, but not quite so necessary as when one has the Bill as currently drafted without the safeguards.
  I want also to underline the point my noble friend made about resources. Bodies like the Information Commissioner often have their activities constrained by the resources they are given. It is important, when identifying an area that needs scrutiny, that the right resources are made available. Therefore, the element of my noble friend's amendment, which seeks to ensure that the right degree of resources are placed in the body, is crucial.
  Lord Newby: This seems to be a sensible amendment. One of my concerns about amendments
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  which require the production of reports is that there is a danger of suffering from report overload. As the noble Baroness, Lady Noakes, missed something in the Whip, many of us miss the publication of reports. However, given the concerns expressed in Committee, this amendment is sensible.
  I hope that once the new regime settles down and the new merged department has been in operation for a few years, the report will not need to be long. Given the wide remit of the Information Commissioner, it is conceivable that his or her gaze would not automatically fall on this area to produce an annual report. Therefore, the provision has much to commend it.
  The Attorney-General (Lord Goldsmith): I start with three preliminary observations. First, I thank the noble Baroness for her gracious remarks in relation to the technical seminar. It goes without saying that, notwithstanding what she said, if it would be helpful for some further meeting to take place outside the Committee or the House that will be arranged. She need only let me know.
  Secondly, I say to the noble Earl, and no doubt I speak on behalf of the whole Committee, that we entirely understand why he was unable to be present on Tuesday. He was represented by an admirable Queen's Counsel. I can think of no better way of being represented, but I would say that, wouldn't I? I note that he has chosen to represent himself in person today, and we are happy about that.
  Thirdly, I made a number of commitments to write to noble Lords to assist with deliberations on the Bill. My intention was to write one letter focusing on the governance of HMRC and providing the additional information on structure that I spoke about on Thursday. I have now sent such a letter to the noble Baroness, Lady Noakes; and other noble Lords should have it this afternoon. It is being placed in the Library, and we will make sure that it is circulated. I do not think that it touches on anything for this afternoon, so there is no need for concern that it comes at this stage.
  So far as the other issues are concerned, I propose sending out a letter tomorrow or Friday, as I wanted to pick up on any issues that may arise today. I will write on a number of questions concerning the declaration of confidentiality and related matters, information about extra-statutory concessions, details of functions of HMRC that could be transferred out to another ministerial department using the Ministers of the Crown Act 1975 procedures under Clause 8. I hope that noble Lords will find this information of use when it comes to deliberations at later stages of the Bill. I am happy to discuss any of those matters informally if that is of assistance. I hope that covers the areas that noble Lords think I have agreed to write on. If there is anything else, I will do my best to meet those as well.
  We have debated at some length the issues relating to confidentiality arising from the amendment. There is nothing between us on the importance to be attached to taxpayer confidentiality, as was made clear in another place throughout the proceedings on the Bill. The difference between us is—notwithstanding what has been said including by the noble Baroness today—

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  that I regard the safeguards already in the Bill, combined with the existing procedures under the Human Rights Act and the Data Protection Act, as already providing a solid and robust set of safeguards. Together with those cases where, for example, we debated the public interest exceptions, there will be a need for further parliamentary scrutiny. We may have to return to that, but in the light of what the noble Baroness said, I indicate that I will be strongly pressing that there is already a substantial degree of safeguards.
  The amendment touches on the issue of scrutiny. There is no difference between us on the importance of that. I want to indicate the strong scrutiny safeguards that already exist. They are not limited to, although they do include, the Information Commissioner. I will enumerate those. Clauses 17 to 23 govern the way in which HMRC can use its information. There is a code on how it can be used. As a result, there are numerous legal safeguards about what can and cannot be done. They are backed up by the statutory duty binding on all staff, and as we discussed, other people as well. There is the criminal sanction for unlawful disclosure; and there is also the symbolic, but all members of the Committee believe important, addition of the statutory declaration.
  3.45 p.m.
  In addition, as Clause 22 makes plain, the Data Protection Act 1998 also applies, so there will be obligations under that Act as well. It is important that that appears in the Bill—although it would probably apply in any event—so that there is no doubt about it. It states:
  "Nothing in sections 16 to 21 authorises the making of a disclosure which … contravenes the Data Protection Act".
  That is shortly expressed, but it is very important because it brings with it the safeguards in that Act. In addition, although we do not need to state it explicitly, the Human Rights Act applies. The noble Lord, Lord Campbell of Alloway, has already referred in some detail to the provisions of Article 8(2) and, rightly, made the point that HMRC will be a public authority bound by the requirements of the Human Rights Act.
  Those are the safeguards that apply. As for scrutiny, the new department will be heavily scrutinised by a number of external bodies to ensure that its practices are compliant with the Human Rights Act and other legislation. I shall enumerate them. First, complaints about the use of information may be directed to the adjudicator, who looks at complaints from the public about how matters are being handled by the department. The Committee may know that the adjudicator is currently the distinguished QC and former Director of Public Prosecutions, Barbara Mills. She is impartial and investigates complaints made by taxpayers against both predecessor departments and will in future against the HMRC. She has the power to make recommendations, such as providing redress to the complainant. In practice, recommendations are always accepted by the departments.
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  Secondly—the Committee may note that I am working up to the Information Commissioner—there is the Parliamentary Ombudsman, whose remit includes complaints from members of the public who feel that they have suffered injustice because of maladministration by government departments. The ombudsman, currently Ann Abraham, has the power to investigate complaints. She reports directly to Parliament. Recommendations in her reports are almost always accepted by the Government and may lead, for example, to redress for the complainant or to the department in question revising its procedures. That is a powerful procedure.
  Lord Campbell of Alloway: May I ask the Minister a question? Will there be an information commissioner?
  Lord Goldsmith: There is an Information Commissioner and I will come to the role of the Information Commissioner in relation to the department and to why my position is that it is unnecessary io include anything specific in the Bill.
  Thirdly, having referred to the Parliamentary Ombudsman, which has a strong and robust procedure, we are including external scrutiny of HMRC officers by the Independent Police Complaints Commission and Her Majesty's Inspectorate of Constabulary, and of the prosecutions office by the Crown Prosecution Service Inspectorate. That will create a high level of assurance that HMRC's performance meets the highest standards of professionalism.
  Then, because of the existence of the criminal sanction, there will then be the responsibility of the prosecuting authorities where there is a breach of the law. That is enormously important, because that provides what does not exist in other areas where there are obligations of confidentiality not backed up by a criminal offence: the rigour that prosecuting authorities can bring. Either the director of RCPO or the Director of Public Prosecutions will have that ultimate responsibility.
  Further, there will be parliamentary scrutiny by means of the Treasury Select Committee, the Public Accounts Committee and the National Audit Office, as well as by means of parliamentary Questions.
  All of those measures of scrutiny come before one gets to the Information Commissioner, which I said that I was working up to. As a result of HMRC being subject to the Data Protection Act, as Clause 22 makes clear, what happens in relation to data protection in the HMRC will continue to engage the interest of the Information Commissioner who will therefore have statutory powers to assess HMRC's compliance with the Act.
  It does not constitute a requirement on the Information Commissioner to produce specifically an annual report in relation to HMRC, as the amendment would do. But I would say to the noble Earl that, given the strength of the existing scrutiny safeguards, it is not necessary to add an additional requirement, as proposed by the amendment, which I would resist.

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  I know that reference has been made by Members of the Committee to the Joint Human Rights Committee. I do not understand the committee to have specifically raised a request for that reporting obligation to be in the Bill. I may be wrong about that, but I do not think so. It gives me an opportunity also to say that on the previous occasion we had a little confusion on whether the response provided to the Joint Human Rights Committee report had been seen by others.
  Perhaps it is my turn to say something in relation to that. At the time, we understood that that response would be circulated. It turned out that it went to the chair of the committee but was not circulated. I hope that Members of the Committee have now received a copy of that and will take account of it on Report, although the noble Lord, Lord Campbell of Alloway, was good enough to say that he had as a member of the committee seen it, but it did not change his view. I was labouring under a misapprehension. I am sorry if that led us into a muddle on that occasion.
  Before I sit down, I should like to acknowledge the characteristic graciousness with which the noble Lord, Lord Campbell of Alloway, referred to what I had to say about his amendments last week.
  The Earl of Northesk: I am grateful to the noble and learned Lord for his response. I am grateful, too, for the support of my noble friends and the noble Lord, Lord Newby. I particularly welcome his interpretation that the new clause is sensible and not a manifestation of what could be called "reportitis".
  I hear what the noble and learned Lord says in respect of other mechanisms for scrutiny of the disclosure regime. But I note that none of them is in the Bill. For example, HMRC is not necessarily particularly well versed in information and data in an IT sense, which is substantially the potential information about which we are talking. It is my judgment that this forms a natural fit with the Information Commissioner's job and functions. Therefore I sincerely believe still that external oversight by the Information Commissioner is necessary in that area.
  I welcome the support that I have received from all noble Lords, other than the noble and learned Lord. I have absolutely no doubt that I shall need to return to this matter on Report.
  Lord Goldsmith: Just in case what I said was not clear, the Information Commissioner does have and will have statutory responsibility in relation to HMRC. He or she oversees an enforcer's compliance with both the Data Protection Act and, of course, the Freedom of Information Act, which is not the issue on which we are concerned, and reports direct to Parliament. The issue is not whether this adds a power for the Information Commissioner. As I understand it, the Information Commissioner has that power. If there is any correction to make to that, I shall come back to it.
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  It is only a question about whether we should insist on a specific report being made by the Information Commissioner to Parliament. That is where I part company with the noble Earl in suggesting that he has not got an attack of "reportitis".
  The Earl of Northesk: I took that point, and my introduction drew the distinction between the drafting of the 1998 Act and the drafting of the amendment.
  Lord Brooke of Alverthorpe: What I am about to say is not directly linked to what has been said. I believe that we now have a greater panoply of measures in place for protection of confidentiality than we had in the past. But there is still one area in which I am at something of a loss to see how an individual can protect himself.
  One of my colleagues here in the Lords found that some of his income tax affairs were revealed in the newspapers. An inquiry was undertaken by the department, but so far as I could ascertain they could not trace the individual who leaked the information. We now have a broader range of sanctions and more bodies involved with endeavouring to ensure that 100 per cent confidentiality would be there. But what would happen in the circumstances that I have just described? Has any thought been given to action being taken on behalf of the individual against a newspaper, or the media, if they have leaked information, if all the inquiries do not yield the source? Yet those who have printed or published or gone on the air with that information will know the source. To whom can the individual turn and will the department or the Treasury give any support in those circumstances?
  Baroness Noakes: The noble Lord, Lord Brooke, rightly raises some important issues about individual taxpayers who know that their information has been misused. A lot of what the noble and learned Lord said earlier was about complaints procedures, in which people know that their information has been misused. The area in which one needs the greatest scrutiny is that in which the individual does not necessarily know whether his information has been used or how it has been used. It is that part of how information may be used that one needs to focus on, and not so much on individual remedies, although I concede that they are important. We need to focus on how HMRC operates the statutory provisions, whether or not an individual knows that his information has been abused. The provisions seem to be less strong at that end of the spectrum.
  Lord Goldsmith: I know that the noble Earl is about to sit down, but I shall respond to that. We are in Committee I suppose, so a degree of informality is allowed.
  Lord Brooke of Alverthorpe: I was looking for a peg.
  Lord Goldsmith: Peg found, I think.
  It seems to me—and this is the relevance to the debate that we are having—that the particular issue that my noble friend Lord Brooke raised and to which the noble Baroness, Lady Noakes, referred is not the slightest bit solved by the amendment. An Information

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  Commissioner will not be any better able to discover the source of a secret leak, which cannot be discovered when the prosecuting authorities or the adjudicator or any other third person gets involved. If they cannot do it, neither will the Information Commissioner.
  That is why, with all respect, it is not at all a buttress to the amendment to raise that problem. I do not criticise my noble friend for raising it, as it is an important point, and I should like to look at the effect of the statutory duty of confidentiality in relation to third parties who get hold of information which they must appreciate has come to them in breach of confidentiality and what steps can be taken against them. That is quite a different question from the purpose of a report. The variety of procedures and the different people whom we can keep under review and investigation is more than adequate to deal with the problem in hand.
  The Earl of Northesk: I would not want to trespass on the noble and learned Lord's territory, and I do not know whether this information will assist the noble Lord, Lord Brooke, but the Information Commissioner does have some powers of investigation and the Data Protection Act has a form of tribunal. So recourse could be sought on abuse of data via the Data Protection Act.
  The noble and learned Lord is quite right: the amendment does not march on that issue at all. The point of difference that he has correctly identified between us is simply that I am saying that the issue is too important for it to become permissive towards the Information Commissioner as to whether he makes a report. I am certain that I shall need to return to the matter on Report, but I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  4 p.m.
  Clauses 24 and 25 agreed to.
  Clause 26 [Rewards]:
  Baroness Noakesmoved Amendment No. 51:
  Page 14, line 5, at beginning insert "Subject to subsection (2),"
  The noble Baroness said: We now come to payments to informers, or rewards, as Clause 26 would have it. I am sorry to see that the noble Lord, Lord Barnett, is not in his place. Amendment No. 51 is merely a paving amendment and the substantive amendment to which I shall speak is Amendment No. 52.
  In this area of the Bill, there has been some levelling up. The current ability of the Customs and Excise is to pay rewards for unspecified services subject only to a power of Treasury direction. That was in the Customs and Excise Management Act 1879. The Inland Revenue has a power conferred by the Inland Revenue Regulation Act 1890 to pay rewards to any person who informs it of any offence against the Act or assist in the recovery of any final penalty. There is a limit of £50 without Treasury consent.
  Clause 26 therefore picks the loosest possible formulation and applies it to the new Revenue and Customs. The much looser Customs and Excise ability
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  to pay rewards for services which relate to functions has been selected over the narrower Inland Revenue formulation, which is linked to offences and recovery of fines and penalties. So, too, the lack of financial limit for Customs and Excise has been selected over the £50 limit for Inland Revenue. There is no explicit reference to the direction of the Treasury, although I accept that there is a power of direction in Clause 11.
  Amendment No. 52 does two things. First, it reinstates the limit beyond which Treasury consent is required. It may well be that £50 is too low for today's world and I would have no problem with a higher limit. But given that these rewards can be paid to staff as well as to outsiders, it seems that some limit should be placed on the commissioner's discretion.
  At Second Reading, the noble and learned Lord informed the House that Customs and Excise, which has the wider power, last year paid total awards of more than £940,000, ranging between £50 and £100,000, while the more constrained Inland Revenue paid only one amount of £100. The sums potentially involved seem to me to argue conclusively for some kind of additional control being exercised by the Treasury.
  The second part of Amendment No. 52 inserts new subsections (3) and (4) relating to parliamentary oversight and accountability rather than day-to-day Treasury control. These require a report to be made each year—a report to the Treasury but also, importantly, laid before each House of Parliament. Subsection (4) makes it clear that the report should be a general one and should not disclose the identity of individuals, which is extremely important. Parliament should be interested in the kinds of payments made and the reasons for the payments, not the individuals to whom they are made.
  Given the current disparity between practices of the component parts of what will be the new HMRC, I imagine that Parliament would want to know, if it continued to be the case, why rewards were concentrated in one part of the new department and not in the other. Parliament would also be interested if payments were made to staff rather than to outsiders and would want to know the reason for that. The bottom line is that payment of rewards opens up the possibility of abuse. The more that it is subject to transparency and openness the better. I hope that the Minister will agree with that.
  At the moment, it is open to the Comptroller and Auditor General to look at reward payments and to include his comments in his report on the annual accounts. However, I understand that he would not routinely look at that area. If an annual report is made, therefore, it may lead to the NAO looking at it on an annual basis. That is not however the purpose of the amendment: it is to enhance public scrutiny of an area which, by definition, is somewhat grey and murky. I beg to move.
  Lord Newby: I am sorry to disappoint the noble Baroness, but this does smack of "reportitis". I agree that it is sensible that the new merged department should explain its general policy on the payment of

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  rewards, but I would have thought that that could be dealt with by a paragraph or two in the annual report rather than having a specific report.
  I disagree with the suggestion that any reward more than £50 should be referred to the Treasury. I simply do not think that the current structure, or relationship between the Treasury and the Revenue departments, makes the Treasury the best repository of knowledge about rewards. The people who know what makes a sensible reward in any given circumstances are the commissioners of the Revenue departments. I would have thought that if ever there was a case for operational discretion being left with the new merged department rather than going up to the Treasury, this is it.
  Report on it, by all means, via the annual report, but do not send up every time you give £100 to someone who has had a good idea that might save some revenue. I cannot see an argument for that having to be reported to the Treasury.
  Lord Goldsmith: The noble Lord, Lord Newby, makes the point strongly. There are two aspects to this: reporting, and approval issues. Like the noble Lord, Lord Newby, I think that it makes sense for these annually reported data to appear in future annual reports of Revenue and Customs. My right honourable friend the Paymaster General has already given an undertaking that data on rewards will be published in that way. I am happy to confirm that commitment to Members of the Committee, and I hope that will deal with that part of the amendment.
  I ought to get a couple of points out of the way on the second part. First, lest there be any misunderstanding, the rewards covered by the clause are not for departmental staff. There is no question of the staff themselves receiving those rewards; they are only for third parties.
  Secondly, why is it that Customs and Excise gives more by way of rewards than the Inland Revenue? There are specific reasons for that relating to the different business that they do. Customs deals with a wide range of enforcement tasks, including drugs and other smuggling, which involve serious and organised criminal enterprises. As I know from experience in my role as superintendent of prosecuting authorities, they are offences that, generally speaking, need information from others to discover them. Unlike offences such as burglary, attacks, or assaults, drug smuggling does not have victims who can come forward to say, "I was the victim of drug smuggling". That is all done covertly, and therefore discovering drug smuggling, or even people smuggling operations, depends in many cases on having information from outsiders. Therefore, rewards are an important means of discovering such offences, and the police find exactly the same.
  I do not know the comparative figures for the police, although Customs is particularly responsible for border control issues rather than the police. Those are important differences, and I have no reason to think that the difference between Revenue and Customs is
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  because of the Treasury control. It is for the reasons that I have given about the different nature of the business that is done.
  It is true that the Treasury will have powers of oversight, both through the general power in Clause 11 referred to by the noble Baroness, and through the financial management controls embodied in the Government Resources and Accounts Act 2000 and set out in Government Accounting, which are unaffected by the Bill.
  The sanctions in relation to payments will not come as a result of a requirement to refer these matters to the Treasury. It will be very difficult ever for a Treasury official, who is necessarily remote from the department's business and prevented for reasons of confidentiality from knowing all the details of individual cases, to veto such a payment. I entirely agree with the noble Lord, Lord Newby, that that matter is much better dealt with within the department. The superimposition of a requirement to go to the Treasury would simply add to bureaucratic control without providing any real comfort.
  There are a number of ways in which reward payments are controlled. Authorisation is required from a central team at the appropriate level of authority for the sum in question. Under existing standards, the higher the sum, the higher the level of authorisation needs to be. Strict criteria are set down for reward payments. One of the principles is that the decision whether to make an award and on the amount of the award is taken by a person independent of the original operational team. There is internal and external scrutiny of the system for payments and every care will be taken to ensure that those safeguards continue to work effectively in the new department.
  It is right also to note that one of those systems for external scrutiny is as follows. The use and management of confidential sources, which is what we are talking about, is and will be subject to the code of practice for covert human intelligence sources. For those who are not familiar with "chises", as we call them, they are what we might otherwise call an informer, but we do not call them informers, they are covert human intelligence sources.
  That is laid out in the code of practice issued by the Home Office under Section 71 of the Regulation of Investigatory Powers Act 2000. Of course, that applies to the police as well, and they are subject to an annual audit of their procedures by the Office of Surveillance Commissioners, who report annually on their overall findings. Paragraph 1.9 of the code notes that the proper authorisation of the source should ensure the suitability of the evidence obtained under the common law, Section 78 of the Police and Criminal Evidence Act and the Human Rights Act 1998. Furthermore, the product obtained by a source described in the code is subject to the ordinary rules for retention and disclosure of material under the Criminal Procedure and Investigations Act 1996.
  That introduces the code of practice for dealing with informers, human intelligence sources. In fact, there is an extra layer of protection, because if an informant is

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  called as a witness in the case, there will always be a question about the disclosure of any payment to that informant as part of those proceedings. That will almost certainly be disclosed to the trial judge, who may or may not require that to be disclosed more widely. So there is an additional level of scrutiny there.
  It is important that the system should continue. It is subject to appropriate control. There is internal and external scrutiny to ensure that public funds made available for that purpose are being properly managed. I note my noble friend Lord Barnett arriving at this moment. The noble Baroness and I know of his strong interest in this issue. All I can say to him is that, while safeguarding the interests of justice, I am satisfied that the appropriate safeguards will be there to ensure that the system continues in an appropriate and properly regulated way.
  Baroness Noakes: It is good to see the noble Lord, Lord Barnett, in his place. He has missed an important debate on the subject of "chises". If the noble Lord does not know what a "chis" is, I am happy to explain it to him afterwards. I learn something almost every day in this place and today is no exception. Before I decide what to do with my amendment, could the noble and learned Lord clarify one point? He said quite clearly that rewards cannot be paid to staff. Clause 26 does not appear to state that.
  4.15 p.m.
  Lord Goldsmith: It is quite right that it does not say that they cannot be paid to staff, but the criteria that are applied internally are absolutely plain on the matter. This is not a payment to staff.
  Baroness Noakes: I take that as an assurance from the Minister that Clause 26 would not be used to make payments to staff; that clearly satisfies one aspect.
  I note that the noble Lord, Lord Newby, displayed his Customs roots again—the free for all in Customs is okay. I share with him the feeling that the Treasury is not the right recipient of the power to prevent a body such as Customs and Excise doing something. I would not normally draft a power for the Treasury, but it seemed the only place to give it for the purpose of this debate.
  I am grateful to the noble and learned Lord, not only for his explanation of how controls would exist over payments but also for his assurance, which I had missed, that they would be given in the annual report, which does not happen routinely at present, as I understand it. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 52 not moved.]
  Clause 26 agreed to.
  Clauses 27 to 31 agreed to.
  On Question, Whether Clause 32 shall stand part of the Bill?
  Baroness Noakes: The clause sets up the offence of assault against an office of Revenue and Customs. The Committee might think that when these Benches
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  oppose such a clause standing part of a Bill we are doing the equivalent of voting against motherhood; we are, after all, the party of law and order. But being the party of law and order does not mean that we accept every offence uncritically, as yesterday's debate on the Prevention of Terrorism Bill demonstrated.
  I reassure the Committee that in opposing the clause standing part of the Bill I am not suggesting that it is a good thing that officers of Revenue and Customs should be assaulted. It is the specific formulation of the offence that is the concern.
  First, we should be clear that this is not simply the carry-over of offences from existing legislation relating to Inland Revenue and Customs and Excise. As I understand it, there is a specific offence of assault against Customs and Excise officers but no equivalent in relation to Inland Revenue officers. So the provision marks a considerable extension of the scope of the offence, and the reasons for that extension have not been explained. One feels that it should at least have been explained in the Explanatory Notes, and I look forward to the Minister's comment on that.
  Secondly, the Bill aligns the penalties for those for offences relating to police equivalents. I quote the noble and learned Lord at Second Reading on 7 February when he said that this was to,
  "align their penalties with their police equivalents in order to deliver consistency across the criminal justice system" —[Official Report, 7/2/05; col. 590.]
  That implies that we are now to regard HMRC as in some way equivalent to the police. I could just about understand that equivalence in relation to some of the existing Customs and Excise functions, but I have grave difficulty in seeing that for all such functions—for example, in relation to VAT. I have even more difficulty with regard to PAYE inspectors or the staff processing schedule E returns or administering child trust funds.
  We in no way condone violence against public servants, but we do not see why the officers of Revenue and Customs should be singled out for police equivalence. I ask the noble and learned Lord whether he believes that an assault against a PAYE or a VAT inspector is worse than an assault against a member of the Pensions Service? I do not believe that the latter have the same protection. What about teachers, doctors and nurses? Why is it that PAYE and VAT inspectors are singled out?
  There is a perfectly good offence of assault in criminal law, and I cannot see why a special offence with special penalties should apply to the officers of Revenue and Customs. If the law of assault is good enough for a defenceless old lady of 90, I suggest that it is good enough for the officers of Revenue and Customs. For those reasons, we oppose Clause 32 standing part of the Bill.
  Lord Barnett: First, I apologise for being absent earlier. I was speaking in the House on the BBC Statement.
  I have been trying to work out why the noble Baroness, Lady Noakes, together with her colleague the noble Baroness, Lady Wilcox, decided that they

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  would rather not have Clause 32 in the Bill. A definition of assault would be useful, and I am sure that the Attorney-General will soon give us a definition in the context of the Bill.
  I declare an interest as a former senior partner in an accounting practice. There were times when I felt like assaulting members of the Inland Revenue, although not often. I am bound to tell Members of the Committee that I always found them wonderful people and marvellous to get on with. I see the noble Baroness, Lady Noakes, nodding in agreement. I never had any serious problems with inspectors of taxes in my experience over many years. Having declared that interest, there was the odd occasion when I felt like assaulting some member of the Inland Revenue, and I would welcome a definition of assault from the Attorney-General in this connection.
  I am not sure about the amounts involved and why it is necessary to have such a specific figure. I would rather leave it to the courts, which in my experience are very sensible. I was a magistrate for a short time before being elected to the House of Commons. I cannot therefore support the deletion of Clause 32, but I would welcome the definition, in this context, of "assault".
  Lord Brooke of Alverthorpe: I, too, was surprised that the noble Baroness, Lady Noakes, had given notice of her intention to oppose the clause. I welcome the general move to give greater protection to employees of both the Customs and the Revenue. When I first started with the Inland Revenue, the department gave little support to people when they were assaulted. In fact, the union provided insurance cover for its members who were assaulted on duty because often they were assaulted not only when conducting inspections and audits, but when collecting schedule D taxes and other taxes, and in particular when required to accompany bailiffs to distrain or recover the outstanding taxes in the form of chattels. Some people were off work for lengthy periods and suffered significant stress.
  The assaults were relatively small in number. Perhaps it is a general reflection on society, with people being assaulted in hospitals and so on, that increasingly people are being attacked in one form or another. I therefore hope that the noble Baroness will reflect on her previous decision.
  Furthermore, I tend to share my noble friend's views that equivalence with the police may be overstepping the mark a little and that there may be a case for reviewing the periods for sanctions. I hope that it will be a criminal act if committed against either set of employees. It is to be hoped that on Report we shall find a solution which gives an acceptable level of sanction.
  Lord Sheldon: There is a case for a clause in the Bill if it can be shown that the number of cases of assault have increased over recent years. Perhaps my noble and learned friend can explain how these matters have been dealt with and how often they occur. Will he also indicate the rise in numbers during the past few years?
  Lord Goldsmith: First, I shall respond to the question put to me by my noble friend Lord Sheldon, which
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  seems to meet the point. Violence and verbal abuse of staff in the course of their duties is a serious problem in Customs and the Inland Revenue. Internal reports of those incidents, which almost certainly understate the true incidence, show 21 physical assaults on Customs and Excise officers, 55 on Inland Revenue officers in the past 12 months, around 70 further cases of threatening behaviour or verbal abuse against Customs staff, and around 950 against Inland Revenue staff. Currently, there are between five and 10 prosecutions a year for assault on Customs and Excise staff. As the noble Baroness, Lady Noakes, said, there is a specific provision for an offence of assault against Customs staff.
  I shall come back to the definition that my noble friend Lord Barnett asked me about. Those are assaults against officers who are carrying out lawful functions, who are seeking to exercise functions on behalf of the whole of the public and who are often carrying them out in difficult, and sometimes—particularly for Customs officers—dangerous, circumstances. I go back to the point that I made in relation to the rewards: Customs officers particularly may often find themselves dealing with serious and dangerous criminals.
  That is the crux of the reason why it is absolutely right that they should be afforded no less protection against assault when seeking to carry out their lawful and public duties than police officers. They are often engaged in very much the same sort of exercise. I know that it is right that there frequently will be occasions when police officers and Customs officers are engaged in the same operation; for example, intercepting perhaps a cargo of dangerous drugs, or the smuggling of people or guns, or whatever. To put the Customs officers in those circumstances at a lesser degree of protection than police officers would send a wrong message about how we value their services and the protection that they should have while carrying them out.
  On assault, the definition is of course intended to be no different from that which common law and other statutory offences provide. To put it very broadly, an assault is the unlawful application of force to another. It may sometimes include an apprehension of the application of force. Members of the Committee may recall that I spent a little time dealing with that in the debate on reasonable chastisement and whether we should outlaw the smacking of children by their parents and set out something of a definition. I hope that that enables my noble friend Lord Barnett to see that our talking about assault is exactly the same as the offence in relation to police officers.
  That gives rise to two questions that the noble Baroness, Lady Noakes, has asked. Whether we should restrict assault offences to law enforcement is a valid question. When drafting the assault provision, it was considered whether somehow to limit the assault provision, even though it is not for Customs at the moment, to those who are engaged in law enforcement activities. The decision was made that, as with the existing Customs assault provision, it ought to cover all officers in the department rather than those just working in the law enforcement area.

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  One may ask: why? In fact—the figures that I have given in respect of incidents demonstrate the point—the incidence of assaults is sadly not limited to those who are involved in law enforcement.
  4.30 p.m.
  I shall come to the position in relation to teachers, doctors and nurses, but I make the general point that for most—one would hope for all—right-thinking people, the services which they provide are not in any sense confrontational to the interests of the people who receive them; quite the contrary. That obviously is not always the view that is taken of what Inland Revenue or Customs officers are engaged in.
  The fact is that assaults can and do occur against officers in all parts of the two existing departments. Therefore, if we restricted the offence just to those in law enforcement, we would not deal with the part of the problem which relates to non-law enforcement. We would also send an unfortunate message to those working in the non-law enforcement part that we care less about their physical welfare than we do about that of their colleagues who work in law enforcement.
  There is a further good reason for the measure. I very strongly support the importance of the law being certain. To have a law which says that it is a specific offence to assault a Revenue and Customs officer, but only if that person is engaged in law enforcement activities, gives rise to all sorts of difficulties. Does the person who is assaulted realise that he or she is at that time engaged in law enforcement? Is it enough that the person was enforcing law half an hour ago and may be doing it again in an hour but is not doing it at this stage? That gives rise to many difficulties. It is much better to have a provision that is certain and applies to all Revenue and Customs officers.
  Of course, as the noble Lord, Lord Barnett, says, the actual sentence to be imposed in a particular case will be for the magistrates to determine. They can take account of all the circumstances. If they think that the circumstance is less heinous in the particular case because of what the officer was doing at that stage, they can reflect that in the sentence if they think fit. For those reasons I strongly resist an attempt to draw a distinction between the relevant people.
  The other issue that the noble Baroness raised is again a fair point. She asks whether we are doing enough to protect other public sector workers such as teachers, doctors and nurses against assault. I discussed with the former Secretary of State for Education and Skills, presently the Home Secretary, how we deal most effectively with the investigation and prosecution of assaults against teachers, which do take place. However, the fact that there may be questions about whether we are doing enough in that regard is not a reason for not giving proper protection to Revenue and Customs officers now.
  I repeat that, thank goodness, teachers, doctors and nurses deal with members of the public who are for the most part very grateful for what those public servants are doing for them, and quite rightly too. However,
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  Customs and Revenue officers, particularly Customs officers, are often dealing with serious and dangerous criminals and deserve the greater protection.
  A proper correction has been made to what I said earlier. I made the point that it is right that Customs officers and police officers engaged in the same operation ought to be subject to the same protection. I would have to look at the detail but I am told that in the circumstances of a particular case on joint operations the Customs officer might be covered by the police offence as it covers those who are assisting a constable. I ought to make that correction and I am grateful to those who pointed that out.
  But even so, without the clause an HMRC officer who was on the same operation but without a police officer present would have a lower level of protection. Therefore, maintaining this clause would put the protection of a Customs officer beyond doubt in all cases.
  The Deputy Chairman of Committees: A Division has been called. I therefore adjourn the Committee for 10 minutes.
  [The Sitting was suspended for a Division in the House from 4.35 to 4.43 p.m.]
  The Deputy Chairman of Committees: Does anyone mind if we start? We have a couple of minutes to go before the end of the Division but if the Committee wishes to start I think that we can.
  Baroness Noakes: I thank all noble Lords for taking part in this debate. The noble Lord, Lord Brooke, talked about victims of assault. I would not like any of my remarks to have implied that I had no feelings for those who are the victims of assault. Victims of assault who work in any of the public services should be supported by their organisations. I suspect that many public sector organisations have been slow to deliver the right levels of support. I support any actions taken to improve the level of support for victims in the workplace generally, whether they work in public or commercial services. That clearly is important but it is not the issue that I am addressing.
  I believe that the noble Lord, Lord Sheldon, said that if the number of assaults on officers of what will be HMRC is rising, there is a case for the clause standing part. The noble and learned Lord gave us some statistics on the rising number of assaults. I believe that reflects rising levels of assault generally in society. I do not have figures in front of me but I suspect that those levels of assault are not rising at the same rate as they are in the NHS, for example, where it is a very real problem. So far as I understand, certainly there has been no consideration given to try to address that.
  4.45 p.m.
  Similarly, in schools we have not only the spectre of children assaulting teachers, but also aggressive parents assaulting teachers and head teachers. The noble and learned Lord might not regard other public

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  service activities as intrinsically confrontational but, in practice, they can appear confrontational in many situations. That leads to a rising level of assaults.
  We have one part of public service being singled out for treatment as if it were the police. I do not question the need to ensure that public servants who are assaulted can be dealt with by the law. The purpose of asking whether Clause 32 should stand part of the Bill, which seems to have mystified Labour Members of the Committee, was to debate the issue of police equivalence and whether it is right to have the levels of penalty applying that are there for the police.
  Rather than keeping the existing provisions for Customs and Excise—the much smaller part of what will be HMRC—the decision has been taken to extend not only the offence, but the level of penalty to a large number of people who will not be in anything like the sense of danger to which the noble and learned Lord referred. In any event, if the note from his Box was correct, those people are already covered by an offence by assisting a constable.
  I am far from convinced that the Government are taking the right approach. In saying that, I do not wish to be taken to condone the assaulting of any public servant. I simply say that this category of public servant—the ones toiling away in current Inland Revenue offices and most of Customs functions—being given a new assault measure at a level that applies to police seems the start of a slippery slope to a sort of police state covering all public servants.
  Lord Goldsmith: The noble Baroness might like to expand on that interesting observation that protecting people who protect us against criminals is somehow a slippery slope into a police state. Given the debate in the House yesterday on prevention of terrorism, she might like to expand on Conservative policy on the matter.
  Baroness Noakes: I shall not rise to that. I was merely remarking that the assault which now has police-level penalties extends police-type treatments to a wider number of public servants, who are operating perfectly ordinary administrative functions. I regret that development; I shall phrase it in those terms. I shall want to consider carefully and possibly return to the clause on Report.
  Clause 32 agreed to.
  Clauses 33 and 34 agreed to.
  Schedule 3 agreed to.
  Clause 35 [Functions]:
  Baroness Noakesmoved Amendment No. 53:
  Page 19, line 4, leave out paragraph (b).
  The noble Baroness said: The amendment would delete paragraph (b) of Clause 35(5). In doing so, it would delete the definition of criminal proceedings from it, which deals with the functions of the new Revenue and Customs Prosecutions Office. The amendment is probing. It looks rather odd and may well have mystified officials who have had to prepare
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  speaking notes for the noble and learned Lord, so I took the precaution of letting his office and Bill team know the rationale for it. The amendment's purpose is to find out whether and to what extent the Hansard procedure used in the Inland Revenue, although not in Customs and Excise, will survive unscathed in the new world of the Revenue and Customs Prosecutions Office.
  Members of the Committee may be aware of the Hansard procedure, which has been used for more than 80 years. It typifies the culture of the Inland Revenue, as opposed to that of Customs and Excise, because it is designed to encourage a non-compliant taxpayer to become compliant provided that he pays a monetary settlement covering tax and penalties. The carrot is that the Inland Revenue may not institute criminal proceedings for fraud. There is no absolute guarantee that the Revenue will not take criminal proceedings, but where a taxpayer has made full and complete disclosure, he has a pretty good chance of avoiding prosecution. The matter then remains entirely civil. It usually costs the taxpayer a lot of money, as well it should.
  Once the Revenue and Customs Prosecutions Office is set up, the decision to prosecute will be taken not by the Inland Revenue—or HMRC in the new world—but by the RCPO. My question to the noble and learned Lord is whether the way in which the Hansard procedure has been used in the past is expected to change in any way when the RCPO takes over. I am sure that the culture of the new prosecutions office will be different from that of the Inland Revenue and I have no basic problem with that. But if that culture would override or ignore the Hansard procedure, that could have a big impact on relationships between the Inland Revenue, taxpayers and the advisers who often play a key role in resolving cases of tax fraud.
  Put simply, the Hansard procedure is intended to reward full disclosure with the probability—and it is no more than that—that criminal proceedings will not be instituted. The taxpayer has to make full disclosure and thereby in effect writes the prosecution case. In the past, the Inland Revenue has prosecuted only if other factors were involved.
  If in the new world the prosecutions office takes the files over and prosecutes in the absence of other factors such as incomplete disclosure, that would send shock waves throughout the taxpayer and tax adviser world and in effect the Hansard procedure would be dead.
  If the Hansard procedure is intended to survive into the new prosecutions office era, will the Attorney-General say whether the procedures will be in place between the RCPO and HMRC to ensure that it will work well in practice? If it is to survive, will he also say whether the Hansard procedure will be confined to the Inland Revenue areas or whether it will apply also to Customs and Excise? If it is not to survive, it will be important to have a clear understanding of that. I beg to move.
  Lord Goldsmith: I am grateful to the noble Baroness who let my office know the purpose behind the amendment. I will answer her specific question in

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  relation to the Hansard procedure. But I want to get on the record and get out of the way the specific amendment which she put forward. I recognise that it is a vehicle for that question, but it would be detrimental indeed if the Bill did not include this definition of criminal investigation. It is enormously important that the RPCO prosecutor should be available to give advice at the earliest stage and, if the clause were not here, identify what criminal investigation means. There could be considerable uncertainty about that and it might prevent the good advice being given at the earliest stage. For that reason, I ask the noble Baroness to withdraw the amendment.
  I turn to the real reason for the amendment being raised; the Hansard procedure. It is a well known procedure which has been used by Inland Revenue investigators for many years as an effective and efficient weapon in the fight against serious Revenue evasion. As she says, it is an effective way to do that. It does not necessarily prevent prosecutions taking place but it is enormously helpful.
  As to where the procedure is going to go, Hansard is one of a number of similar procedures which are at present subject to review by both the Inland Revenue and Customs as part of the process of integration or merger. Both departments want to ensure that HMRC's approach to civil sanctions in cases of serious evasion is consistent. This is a major review. The views of external stakeholders will of course be sought as a key part of the process. As an indication of the timescale to which the two departments are working, I am able to inform the Committee that it is envisaged that the review will produce some emerging findings within the next month or two. However, whatever the outcome of that review, I can confirm that individual agreements already entered into under the Hansard procedure will continue to be honoured by HMRC provided—as is understood—that HMRC is satisfied that the taxpayer in question continues to co-operate with the procedure. I also assure noble Lords that should any changes be proposed to Hansard following the consultation process I have outlined, those proposals will be announced to the House in the usual way. The Hansard procedure takes its name from the fact that it was recorded in Hansard.
  The noble Baroness asked me about Customs. That issue is under review but I can tell her that Customs has a similar approach although it is not specifically called the Hansard procedure. My recollection is that the Hansard procedure is so called because of a statement by the then Chancellor—I forget who it was—which was reported in Hansard. Plainly that has not happened as regards a specific parliamentary statement on behalf of Customs.
  I turn to the other part of the question; namely, how RCPO will relate to the Hansard procedure. A decision whether a suspected fraud should be dealt with using this procedure, or should be dealt with by RCPO for consideration as to whether a criminal prosecution is appropriate, will be in accordance with HMRC policy. A series of agreements between HMRC and RCPO is being negotiated at present. Included in those agreements will be an agreed consultation process between the director of RCPO and commissioners of HMRC on matters of
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  policy which are of potential interest to both departments to ensure a consistent and constructive approach. It will be particularly important that both HMRC and RCPO are clear on the policies for whether cases are pursued criminally or civilly in the public interest. At policy level RCPO will have a role in the decision-making process about which cases should be treated civilly and which should be treated criminally. Once finalised those agreements will be made publicly available.
  I hope that I have answered the specific questions that the noble Baroness put to me. Plainly, what she has said regarding the experience and the value of the Hansard procedure—which in large measure I have confirmed—will, I am sure, be borne very clearly in mind by those who are reviewing the process to which I referred earlier. I indicated that any changes to that process and agreements with RCPO would be the subject of announcements. I hope that that gives the noble Baroness enough information. I have addressed the amendment itself and I invite the noble Baroness to withdraw it.
  Baroness Noakes: The noble and learned Lord need not fear that I shall not withdraw the amendment as I had no intention of pursuing it, even if one could do so in Grand Committee.
  I am very grateful to the noble and learned Lord for his response, in particular for having confirmed that existing Hansard agreements would be honoured. That was a helpful assurance. The rest of his remarks were very helpful but as they were not definitive they clearly raise many other questions. I shall certainly draw the attention of those who I know are concerned about this matter to the contents of Hansard. It seems to me that big question marks now arise regarding the Hansard procedure and how it will work in practice, and in particular as regards the policy agreements between HM RC and RCPO.
  This is not the place to resolve those issues but I wanted to put them on the record so that those who are concerned about the matter have an opportunity to consider the comments and make appropriate representations at the appropriate time. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 35 agreed to.
  Clauses 36 to 49 agreed to.
  5 p.m.
  Baroness Noakesmoved Amendment No. 54:
  After Clause 49, insert the following new clause—
  "REPORT ON HER MAJESTY'S COMMISSIONERS OF REVENUE AND CUSTOMS
  (1) On or before the second anniversary of the coming into force of this Act, in accordance with section 53(1), the Chancellor of the Exchequer shall appoint an independent person or persons to report on the operation of Her Majesty's Revenue and Customs.
  (2) A person shall not be treated as independent for the purposes of subsection (1) if he is or has been—

  (a) a Commissioner for Her Majesty's Revenue and Customs;

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  (b) a Commissioner of the Inland Revenue or of Customs and Excise;

  (c) an officer of Revenue and Customs;

  (d) an officer of the Commissioners of Inland Revenue or the Commissioners of Customs and Excise;

  (e) an employee of the Treasury.

  (3) A report under subsection (1) shall include assessments of—

  (a) the overall success or otherwise of Her Majesty's Revenue and Customs since its establishment including, but not limited to, a cost-benefit analysis,

  (b) the direct costs of effecting the integration,

  (c) the direct cost savings achieved by the integration,

  (d) whether efficiency gains have been achieved as a result of the establishment of Her Majesty's Revenue and Customs including, but not restricted to, the effects of the integration on the tax yield and the incidence of fraud,

  (e) the overall compliance burden, including the impact on day-to-day customer service and the experience of taxpayers in dealing with Her Majesty's Revenue and Customs,

  (f) the performance of Her Majesty's Revenue and Customs in the development and application of information technology and data systems,

  (g) the working relationship between Her Majesty's Revenue and Customs and the Treasury including, but not restricted to, the adequacy of arrangements for accountability,

  (h) the performance of the Revenue and Customs Prosecutions Office including, but not limited to, a cost-benefit analysis,

  (i) the work undertaken preparatory to the integration, and

  (j) any other area that the person appointed under subsection (1) considers relevant to an understanding of the creation or operation of Her Majesty's Revenue and Customs.

  (4) A report under subsection (1) shall not be expected to include any assessment of—

  (a) the annual performance of the Commissioners for Revenue and Customs in discharging their responsibilities as tax administrators and collectors, except in so far as these have been affected by the merger, or

  (b) any matter (whether relating to value for money or otherwise) that has been reported on by the Comptroller and Auditor General.

  (5) A report under subsection (1) shall be prepared annually for five years from the date referred to in that subsection and shall be laid before both Houses of Parliament and published.
  (6) The first report under subsection (1) shall be completed within 12 months of the date referred to in that subsection.
  (7) In this section "the integration" means the creation of Her Majesty's Revenue and Customs from the Commissioners of Inland Revenue and the Commissioners of Customs and Excise."
  The noble Baroness said: It is always a pleasure to come to the last amendment on, the Marshalled List, which is very often about report, so we are not disappointing the Grand Committee in this instance.
  The amendment would require a report to Parliament on the progress of the integration of HMRC. As the Committee will be aware, we have not opposed the integration of the Inland Revenue and Customs and Excise, but it is true that the benefits and practicalities have nowhere been spelt out with
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  absolute clarity. That is not perhaps a surprise given that the Government are such late converts to the idea of merging the two departments.
  We can accept the fact that a proper business case has not been put before Parliament; in effect, we are making an act of trust—but only on the basis that information will be made available to Parliament to allow the success or otherwise of the venture to be judged. As the noble and learned Lord said at Second Reading, the,
  "integration of Customs and the Revenue is a huge job. and it will take time to deliver it".
  He went on to explain that this Bill cannot itself deliver the immediate improvements that we shall in the end wish to see,
  "but it establishes HMRC and thereby allows it to make some changes now and to begin working towards more substantial reforms".—[Official Report, 7/2/05; col. 587.]
  That is exactly why we feel that an independent review is essential.
  We need to be able to check that the merger is working, not working the tax yield but increasing it, and not creating an unsustainable compliance burden for taxpayers. Indeed, the time lag that the noble and learned Lord referred to prompted us to select the need for a review to start two years on from Royal Assent and continue annually for five years after that. The benefits of the merger may take time to deliver, but that does not mean that Parliament should lose sight of its progress.
  I shall explain some of the detail of our amendment. It would create an independent report on the creation of Revenue and Customs, with a duty to include assessments covering 10 specific issues, listed in subsection (3) of the proposed new clause. The first feature of the amendment is that it is an independent person or persons undertaking the review. It was suggested in another place that the annual reports of HMRC would be the place to report progress, but we do not agree with that. Parliament needs an independent view, which is why we have suggested that the people eligible for an appointment are not or have not been associated with HMRC, the predecessor bodies or the Treasury.
  The first assessment I shall refer to is that of the work undertaken preparatory to integration, which is in subsection (3)(i). To date, the Government have not revealed plans for the way in which the new organisation will operate, although the noble and learned Lord has referred to some aspects, such as the organisation structure, on which he said that he would write to me. The general approach of project planning has not been revealed and we have little confidence to date that there is a clear and logical approach to the integration. Indeed, the rush towards creating the body, perhaps starting from next month, reinforces us in that.
  Similarly, the amendment would require an assessment of the overall success or otherwise of the integration, including the cost-benefit analysis, in subsection (3)(a). In the light of the apparent lack of planning that has gone into the integration, we remain unconvinced that the Government have fully thought

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  through how to capture the benefits of the merger or even tried to measure them that much. The full costs of completing the integration have not been spelt out, nor have implementation risks. Indeed, there is a distinct absence of quantification of benefits or costs, which is why our amendment requires assessments to be made of the direct costs of effecting the integration and the direct savings achieved by it, in subsections (3)(b) and (3)(c).
  The initial costs of the integration of the new department are quoted in the Explanatory Notes as "around £75 million" over two financial years. But there is a failure to quantify any further costs or even the cost that would arise from the risk of disruption while the merger occurs. While the current figure for savings in jobs related to the merger, at around £3,200, is relatively small, we know that we will be looking to much greater benefits than that—beyond the £100 million or so savings that have been quantified.
  I hope that the noble and learned Lord will agree that the real advantage of the merger should be the opportunity to increase tax yield, to reduce the tax gap and to reduce the incidence of fraud. As such, our amendment requires an assessment of efficiency gains as a result of the integration, which is captured in subsection (3)(d).
  Hand in hand with the need to study the efficiency gains is the need to study the impact on taxpayers and the overall compliance burden. I concede that the merger gives the opportunity for a win-win situation—efficiency gains to the Chancellor and service gains for the taxpayer—but there is also a very real possibility that it will cost a lot, deliver few yield benefits and burden taxpayers, which is why we need a report.
  A significant area of worry, which we have already highlighted at Second Reading and in Committee, is the integration, development and application of IT and data systems, which is an area of particular concern given the Government's track record on large IT systems in general and those of the Inland Revenue in particular. We do not have to think back very far to find that the electronic lodgement service collapsed over the critical weekend at the end of January. The tax credit system is fraught with problems. The Inland Revenue merged with the National Insurance Office a few years ago, but the IT systems remain wholly separate—and, in the case of national insurance, of low functionality.
  Can the noble and learned Lord say to what extent the new systems about to be installed in Customs and Excise will be merged with those in Inland Revenue? If so, that raises huge risks. There is so much that could go wrong that it is absolutely essential that there is proper scrutiny of the IT aspects of the integration, for which subsection (3)(f) calls. There are other aspects of the amendment, but I think that I have given a flavour of the reasons for it and its specific requirements.
  The amendment goes to the heart of our concerns on the Bill. I acknowledge that there are other methods by which the Treasury can report on HMRC's progress, which no doubt the noble and learned Lord will list. But I believe that most of those methods have deficiencies compared with the method proposed in
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  the amendment. An independent annual report, such as this, will provide much better understanding of the development of the new body in its early years and its aim to produce a coherent and consistent approach to meet taxpayers' needs as well as the needs of efficiency.
  I stress again that, most importantly, the review is independent. Without that, there is a very real danger that HMRC would be its own judge and jury in the matter of integration and its success. The noble Lord, Lord Newby, might think that I have another case of "reportitis". But because we have had so little hard evidence prior to the commencement of this integration, Parliament is owed a proper and coherent account during the critical phase when the integration will, I hope, deliver benefits but could also run into problems. That is when parliamentary scrutiny is certainly needed. I beg to move.
  Lord Newby: This amendment reaches the substance of much of our concern about the Bill. As we also made clear on Second Reading, we support the Bill in principle.
  [The Sitting was suspended for a Division in the House from 5.9 to 5.18 p.m.]
  Lord Newby: As I was saying, our main concern on Second Reading was not with the principle behind the Bill but the extent to which the aim of improved efficiency, improved collection of revenue and improved service to taxpayers will be met, given the two very different cultures in the new department and the relatively small amount of work that seems to have been done in advance of the Bill to consider how the new merged department will work.
  The Committee will remember that we were told that more work could not have been done before the Bill on the basis that there was no parliamentary sanction for the expenditure. I hope the noble and learned Lord will not mind my saying that that is the most extraordinary excuse that I have heard. On ID cards, where there is certainly no parliamentary sanction at this stage, tens of millions of pounds have already been spent to consider how they might work. The amount of money that would have been required to do the necessary work here would almost certainly have been significantly less than that. So that is a feeble and unacceptable excuse.
  We therefore find ourselves without the assurance that adequate work has been done to ensure that the full potential benefits of the merger are captured in reality. The danger is that the merger will take place and no doubt various policies will be introduced to capture the benefits, but they will not be adequately exposed to scrutiny. The merged department may take its eye off the ball in getting those benefits. Once the merger has taken place, it will be easy for the two component parts to sink back into their former ways of doing business, which have lasted a long time. Many of the things that will need to happen to capture the benefits, such as new IT systems operating across taxes, or new training systems to enable individual tax officers adequately to advise business taxpayers, in

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  particular, across the whole range of taxes rather than having former Customs taxes on the one side and former Inland Revenue taxes on the other, may not be put in place.
  We will not know how the whole thing is going. The amendment is intended to address the issue of exactly how best to ensure, first, that the pressure is kept on the departments to drive towards those efficiency savings and, secondly, how to ensure that Parliament and others can see what is happening. In a sense, I am agnostic about the precise form of doing it. I am not especially wedded to the amendment, but I am wedded to the concept of having both the pressure to get the benefits and the reporting of success or failure to achieve them. I look forward to hearing what the noble and learned Lord says to reassure me that the new, merged department will treat as a priority not just continuing to exist but achieving the benefits that are the real purpose behind the Bill.
  Lord Barnett: On Second Reading, I was also concerned about the benefits and efficiency of the merger, but I am bound to say to the noble Baroness that I find it difficult to understand the new clause. The Peers' seminar, if I may refer to that document again, deals with much that is relevant to the new clause. The new clause states:
  "A person shall not be treated as independent for the purposes of subsection (I) if he is"—
  I assume that that includes "she is"—
  "or has been … a Commissioner for Her Majesty's Revenue and Customs",
  and all the other commissioners. Frankly, someone who has been a commissioner could well be truly independent more independent than any of us in this Room.
  Then the new clause states:
  "A report under subsection (1) shall not be expected to include any assessment of—

  (a) the annual performance of the Commissioners for revenue and customs in distorting their responsibilities as tax administrators and collectors, except in so far as these have been affected by the merger, or

  (b) any matter (whether relating to value for money or otherwise) that has been reported on by the Comptroller and Auditor General".

  They will not know on what the Comptroller and Auditor-General is going to report, so, presumably, it would come later.
  As I said, I do not know how many Members of the Committee have had the good fortune of reading the Peers' seminar document which, I may say, was not given to me when I attended the seminar; I got it later. I assume that the new body would not consist of just one or two people; it would be a new bureaucracy. The noble Baroness, Lady Noakes, is madly in favour of new bureaucracies, and she would certainly get one here. All the work could not be done without a reasonable-sized staff. The body would not need them, however, as we are told on pages 11 and 12 of the Peers' seminar document what would be done in that regard.
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  So far as prosecutions are concerned, we will have an independent complaints commission—the IPCC—and also HMIC. All those words will be very clear to the noble Baroness, I am sure. On the costs of running the new department and the managing and accounting for revenues, there will be the introduction of,
  "new arrangements for funding shortfalls in cash on days when revenue outgoings—such as tax repayments and tax credit payments—exceed revenue receipts. These arrangements enhance Parliamentary scrutiny of the process by replacing the current system of making an automatic claim on the Contingencies Fund … Then, the Treasury must seek permission from the C&AG. thereby enhancing transparency and Parliamentary oversight".
  All that will be done.
  Does the noble Baroness really imagine, from her knowledge of the National Audit Office and the Comptroller and Auditor-General, that he would not look at the various matters covered by the proposed new clause? It mentions the direct costs of the effect of the integration,
  "the overall success or otherwise of Her Majesty's Revenue and Customs since its establishment … the working relationship",
  and,
  "the performance of the Revenue and Customs".
  What does she think that the Comptroller and Auditor-General does? I declare a past interest as chairman of the Public Accounts Committee. Those are precisely the areas at which the Comptroller and Auditor-General will be looking. Indeed, if he—or she, perhaps, one day—is not looking at them, I would ask a lot of questions. You do not need a new body to look at them. How will the new body operate without asking the Comptroller and Auditor-General what he or she plans to do?
  I hate to say so but, frankly, the noble Baroness must know that the amendment is something of a nonsense. I look forward to her withdrawing it.
  The Earl of Northesk: On the margins of my noble friend's amendment, I wonder whether the noble and learned Lord could help me with something. As my noble friend explained, subsection (3)(f) in the amendment refers to,
  "the performance of Her Majesty's Revenue and Customs in the development and application of information technology and data systems".
  It is well recognised that successive administrations have encountered grave difficulties in the procurement and introduction of IT systems. Indeed, my noble friend alluded to such problems in her introduction.
  As the noble and learned Lord will be aware, the Government introduced the Gateway Review process as a mechanism for scrutinising and assessing IT and other projects, in a bid to check for signs of failure during any given initiative's development. The process involves a system of RAG—red, amber and green—statuses awarded to each gateway stage. He will no doubt also be aware that, following a freedom of information request submitted by Government Computing News, the Office of Government Commerce revealed yesterday that no fewer than 10 current IT projects had received consecutive red lights, suggesting at the very least that they are perilously placed.

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  Certainly, according to the OGC's official guidance, a red light signifies that "remedial action" must be taken immediately. Unfortunately, however, the OGC declined to indicate which projects were at risk. Accordingly, will the noble and learned Lord guarantee that IT projects currently being procured by either the Inland Revenue or Customs and Excise have managed so far to proceed through the Gateway process without acquiring any red lights? It states the obvious to say that the continuing viability of HMRC's IT systems is absolutely crucial to the success or otherwise of the proposed integration. On that basis, we really need to know whether any Gateway red lights have been applied to any of its projects.
  5.30 p.m.
  Lord Sheldon: The role of the Comptroller and Auditor-General is obviously important, but it comes some time after these events, which are so important and serious that we need something a little earlier than the final decisions or recommendations that we get from the Comptroller and Auditor General and the report that is made to the Public Accounts Committee.
  I have expressed a number of serious reservations about this merger. We need to have a more frequent progress report. I am not saying that it should take place every week or every month, but we need to be informed about how it is proceeding and what the problems are. We need to keep in touch with developments. As has been mentioned, there is the important aspect of the tax yield, but there is also the most important point about fraud and honesty. Two different cultures are being brought together, which have had enormous standards of honesty and probity over hundreds of years. Bringing them together and having to adapt to different procedures puts that at risk. Because of that, we need to keep a closer watch than might normally he expected.
  I note that some of those reservations have been shown by the Government in some changes in the way that they have spoken since those debates in December, when there was much greater enthusiasm and much greater expectation of rapid progress than we have seen subsequently. I have seen that in some of the statements and points that have been made.
  It may be good in the end to bring the Inland Revenue and Customs and Excise together, but we will see serious problems in the transition period. I want to make sure that we can have some report on how the money is coming in. I notice that the money is now reduced to very small amounts indeed by comparison with the vast sums that the Government thought they were going to get. My own view is that we are not going to make money—we are going to lose money. The cost of bringing them together is greater than the trivial sums that they expect to get from it. In the end, if it is successful in five or 10 years time, it could be a good thing, but the transition is the serious part. I would like to see some sort of information being given to Parliament on how it is proceeding so that we can be in touch with developments.
  Lord Goldsmith: In introducing this amendment, the noble Baroness—I recognise that it was a slip of the
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  tongue—said that it was the last report. That is exactly the point that I wanted to make. This is the third amendment proposing putting statutory reports in the Bill to do things that are going to happen in any event. It is that on which I want to concentrate.
  Plainly, reports will be made, but there will also be important external, independent scrutiny. Before I come to the details of that, I want to touch on one or two points that to some extent reflect back to the Second Reading debate. We are confident that this integration, merger, or whatever you want to call it, makes sense in the efficiencies that it will create, and the benefits not just for the collection of revenue, not just to deal with fraud and dishonesty, but in dealing with individual taxpayers.
  The O'Donnell review reached a clear conclusion on the reasons of principle supported by evidence to consider an integrated department, and as I said in winding up the Second Reading debate that is supported by individual, expert, independent persons, whose commendation of the conclusions are set out in the O'Donnell review. I have made clear that many of the benefits from the merger will accrue over time and will stem from decisions to be taken over the next few years. Notwithstanding that, we see those benefits accruing in future as the advantages of integration and the advantages of merger are seen by the new department. Already, ambitious efficiency savings over the 2004 spending review period are anticipated, so targets have been set to achieve savings of at least £0.5 billion by 2007–08. That is not an insignificant figure.
  I also emphasise that the integration that we are discussing is not happening independently of the day-to-day business that the departments will carry out. On the contrary, it is fundamental to the business that they will be doing. All the parliamentary and external independent processes that will be looking at the business that the department is carrying out will inevitably be looking at the success of the integration process at the preparatory stage and as we move forward; they would be doing that even if they did not try to do so, but I am sure that they will.
  I come back to the details of reporting and scrutiny. I have referred already to the reporting that will take place through the annual reports and accounts that will be submitted by HMRC to Parliament and which will be published. They will provide extensive information on the costs incurred and the other financial aspects of integration and the integrated departments' day-to-day business, including—7 very importantly—progress against the departments' public service agreements and efficiency targets. Those are precisely the aspects that will help one to measure the benefits that the noble Lord, Lord Newby, referred to. He has been consistent in his support for what is happening, but he is determined to see that the process produces the full benefits.
  The Revenue and Customs Prosecutions Office will be required to make an annual report to me about the exercise of its functions, under paragraph 6 of Schedule 3. That report will be laid by me before

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  Parliament. Under corporate governance arrangements, the commissioner's audit committee, chaired by a non-executive, which we discussed during our last sitting day, will scrutinise the new departments.
  Managing the integration will be a prominent element of the risk management arrangements. I note—and the noble Lord, Lord Sheldon, made the same point, wisely, at Second Reading—that we must be careful about the risks while the integration takes place. I take that point, but those responsible for the process take the point also. I have no doubt that that will be looked at very carefully and kept well in mind as the integration continues. The noble Lord referred at Second Reading to the important culture of honesty and integrity which, as I said in that debate, both departments have. I hope that he will accept the assurance that I have then, that that aspect is regarded as very important, and is one of the proud traditions of the two predecessor departments that will be carried forward into the new department. That will be looked at.
  Let me turn to the scrutiny, since the noble Baroness asks for independent scrutiny elsewhere. Accounts will be scrutinised in the usual way by both the National Audit Office and the Public Accounts Committee. Those bodies are very important and independent; I hope that no Member of this Committee would take the view that the sort of scrutiny that Parliament provides should be regarded in some way as second best and that instead we must look to some independent person, with "independent" defined as it is in the amendment proposed by the noble Baroness. As the noble Lord, Lord Barnett, says, that person could not have, and would be precluded from having, direct personal experience of how the department operates.
  The Public Accounts Committee can request the Comptroller and Auditor-General to examine and report on the progress. The noble Lord, Lord Sheldon, made the point that that may happen some time after the event. But the fact that the Public Accounts Committee can call for that and can call for the sort of rigorous scrutiny which the Comptroller and Auditor General can produce will always be clearly in mind as the integration and the new department takes place.
  My final point on scrutiny is that the Treasury Select Committee has already indicated that it will take a very keen interest in these events. I fully expect that it will question my right honourable friend the Chancellor and senior officials regularly over the next few years.
  I venture to suggest that no one need tell the Treasury Committee that what is taking place here is a very important step. The role that the two departments presently play, and will play as a single department, in the life of the nation is of the greatest importance. I have no doubt that they will want to apply their minds conscientiously, rigorously and carefully to the matter, and will press hard to make sure that the operation produces all the benefits that it can for the people of this country.
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  I was asked a specific question about information technology by the noble Earl. The very fact that he is able to draw attention to the work of the OGC demonstrates the strength of existing scrutiny that takes place of important aspects of government business. I am not in a position to tell him about individual projects, but I assure him that the OGC review process itself identifies risks, as his question made clear, and that the department is bound to deal with them.
  The noble Baroness placed her emphasis on independence. All the scrutiny in the list to which I referred is independent of HMRC. There is its audit committee, the National Audit Office, the Public Accounts Committee and the Treasury Committee, and the important role of parliamentarians under our system of parliamentary Questions, bolstered by the Freedom of Information Act. I venture to suggest that no one can have any doubt—to put it in positive terms, I am sure—that the way this important and major merger will take place will be subject to strong scrutiny. It is not necessary to place in the Bill the sort of reporting requirement that the noble Baroness seeks.
  I say all that without adopting, which I otherwise respectfully would do, the concerns raised by my noble friend Lord Barnett about the structure of what is proposed in relation to the report. Let the bodies that I have identified do their job. They will do it strongly, robustly and independently and can give us all the assurance that we need that the integration will be a success and will bring considerable benefits, as the O'Donnell review anticipated.
  Baroness Noakes: I thank all Members of the Committee who took part in this important debate at the conclusion of the Committee stage of our consideration of the Bill.
  Our concern for independent scrutiny stems from the lack of a clear setting-out of what the integration is all about. As I said, we were prepared to take that on trust, provided that there was enough information afterwards. The noble and learned Lord talked about the O'Donnell review being supported by evidence. Frankly, we dispute the strength of that evidence. Much of it is assertion or extrapolation from minor government department rationalisations and reorganisations. We do not want to go into that, however. The integration will go ahead, and we are not trying to stop it. We are trying to see that there is proper scrutiny of the progress of the integration to ensure that it lives up to all the claims made for it, and that it does not deliver unintended consequences.
  As I expected, the noble and learned Lord read out a list of scrutiny mechanisms that would somehow ensure that there was enough scrutiny of the integration. However, none of those mechanisms was exclusively focused on the issues that I listed in subsection (3) in the amendment, which is really designed to give an update on what is happening with the integration on a regular basis.
  The noble and learned Lord said that the Treasury Committee would take a keen interest. Yes, I am sure that the Treasury Committee will take a keen interest, but interviewing the Chancellor of the Exchequer,

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  other Ministers and senior officials is not the same as having some form of independent report on what is happening as a basis for scrutiny.
  The Attorney-General also talked about the NAO being able to look at how the integration was proceeding and the NAO's reports being considered by the PAC. The issue is not whether it can but whether it will be able to do that on a timely basis. The NAO issues value-formoney reports that focus on particular issues, and it has a programme. It is extremely unlikely, knowing the way that the NAO and the C&AG operate, that they would keep the matter under regular, annual review because it does not flow automatically from the accounts of HMRC.
  Lord Goldsmith: I invite the noble Baroness to consider my point. Because the integration is about how the department does its business, the accounts showing how it has done its business necessarily throw light on the effects of the integration, whether it is achieving benefits or creating disadvantages, and whether it is fully achieving those benefits.
  Baroness Noakes: I have to say that that is so only in the most technical of senses, in that it can provide the starting point for looking for something. When you are trying to consider how integration is working out in practice, you do not start from the audited accounts. You start from understanding what are the costs and benefits, where the yield benefits are and what is the compliance burden. Those do not flow naturally from the accounts. I am not saying that the Comptroller and Auditor General could not use the annual report as a starting point, but it would not flow naturally out of an annual examination of the accounts.
  The starting point would come from a specific study of progress on the integration, which is exactly the kind of study that the C&AG does. I considered including the C&AG in the amendment because he is the most independent and relevant person to undertake that
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  report. As a matter of parliamentary propriety, it is impossible to require the C&AG to carry out particular activities, because he is accountable to Parliament and works under the direction of the PAC in choosing his studies. If it were possible to put the C&AG into the amendment, I would.
  The noble and learned Lord also referred to the audit committee, but that is an internal process focusing on some risks. The audit committee will not, unless it has the most extraordinary terms of reference, examine all the items in subsection (3) of the new clause.
  I am not surprised that the noble and learned Lord replied as he did, because I have taken part in these debates before and there sometimes appear to be two universes—one on the Government side, where it is asserted that scrutiny takes place and it will all be fine, while we assert that the ordinary processes of scrutiny will not put sufficient of a spotlight where we want it. The list of ways in which the integration can be highlighted does not come anywhere close to the kind of scrutiny of the integration that we have in mind.
  I shall read carefully in Hansard what the noble and learned Lord said, before considering what to do on Report, but I give notice now that proper, open scrutiny of the progress of the integration is very important. We should ensure that that is dealt with properly in the Bill. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 50 agreed to.
  Schedule 4 agreed to.
  Clauses 51 and 52 agreed to.
  Schedule 5 agreed to.
  Clauses 53 to 57 agreed to.
  Bill reported without amendment.
  The Committee adjourned at ten minutes before six o'clock.