MR PAUL GRAY CB

1 MARCH 2007

  Q40  Chairman: Thank you very much for coming along and talking to us. You will know the Committee is interested in public services and it is particularly interested for its current inquiry in the position of the user. An aspect of that is how people complain about public services. You came within our sights because citizens are fairly heavy users of the Ombudsman in relation to your services with tax credits, and therefore we thought we would talk to you about it and how you handled all of this, and we can ask you other things too. Do you want to say anything else by way of introduction?

  Mr Gray: I was not planning to make a rehearsed speech. I can give you an overview if you want but I am more than happy to move straight into questions so that I can try to address the issues you want to talk about.

  Q41  Chairman: Let us do that. Thank you very much for coming. You are a funny organisation, are you not, because although you call them customers they do not have much choice really? They cannot go anywhere else, can they?

  Mr Gray: No, we are a monopoly provider in all the key tasks we undertake, both in relation to tax collection, tax credit payment and travellers and businesses crossing the frontier. We are not a producer of choice for most people but I still think it is very sensible in terms of setting the right expectations that we regard ourselves as a customer facing and customer focused organisation and we seek to aspire to provide the best level of service we can. I think it is worth saying that we are dealing with a very wide range of people, as well as having contact with virtually everybody in the country at one time or another. We are dealing for the most part, in my view, with people who actually do want to do the right thing and to meet their obligations towards society through us, by paying their taxes and doing the right thing in crossing the frontier. Given that the great majority of the people we deal with do want to do the right thing, it behoves us to seek to adopt the highest levels of customer service and customer focus. Equally, perhaps unfortunately but inevitably, we also deal at the other end of the spectrum with some people who are absolutely determined not to do the right thing, including serious organised crime, and there I still think it is relevant for us to be focusing on those people. Maybe the phrase "customer focus" does not quite capture it there but the underlying sentiment that we seek to understand the motivation of all the people we are dealing with and where they are coming from will enable us to do our job better. Whether it is supporting people who basically want to pay the right amount of tax or whether it is cracking down on people who are doing their level best to avoid their obligations, we are doing our level best to understand what they are up to and to try to make sure they do meet their obligations.

  Q42  Chairman: I was struck by the memorandum we had from TaxAid which says that "one in three taxpayers whose tax is collected under PAYE[1] has the wrong tax coding (i.e. the implication being that they are paying the incorrect amount of tax); one in three tax returns is incorrect ...".[2] Maybe I should not have been staggered by these figures but are they true?

  Mr Gray: I do not recognise the former statistic, in relation to tax codings. I do recognise the latter figure, as regards the number of assessments where, in the great majority of cases, there is a marginally incorrect overpayment or underpayment. As far as the coding notice is concerned, I obviously looked at the various memoranda that you had had presented to you as part of this inquiry and I just do not recognise the coding thing. Our statistics suggest the figure is something like 8%, not 33%. In terms of the amounts of tax being collected at the end of the year and how accurate they are, I do recognise a figure of roughly 30% having some adjustment needing to be made. That reflects, primarily, I think, the fact that an increasing proportion of people in today's labour market, even if at the early point of the year we get the tax coding as right as we can, are having multiple sources of income, they are having changes in their working circumstances during the course of the year, and that leads at the end of the year to a need to make an adjustment—which of course we can then do in the subsequent year's coding.

  Q43  Chairman: On the complaints side, this table that we have from your Annual Report gives all your figures about complaints received by HMRC and the different business units that it relates to but it does not tell us how many of those were internally upheld, does it?

  Mr Gray: It does not. It is a bit difficult for me to give you a precise statistic on that. In the great majority of cases, it would get a complaint. If it is about accuracy—somebody complaining, "You've got this wrong"—we obviously seek to put that right at the earliest possible time. The majority of the complaints we get, however, are not about the pure accuracy of the outcome that we have achieved. They will tend to be about delays in how we have dealt with people, complaints of one sort or another about the manner in which we may have dealt with people. We obviously seek to put those right, in one sense, but if there has been an unacceptable delay then it is a little bit difficult for us to turn the clock back. But where we think a complaint is justified—and we recognise in a great majority of cases—we obviously have arrangements to make compensation payments. In total, we made compensation payments to people of just over £3 million in the last year.

  Q44  Chairman: I am just pointing out that it is difficult to get a sense of how you are dealing with your own complaints. Although you tell us the number of complaints—and one of the things TaxAid say to us is that people are told they have to write "Complaint" on the letter, as it were, to make it a complaint, but leave that aside for the moment—it would be quite nice to know how these are being dealt with internally; that is: What were they about and were they upheld or not? Just having the aggregate figures does not tell us. If we go to the Adjudicator we find that 43% of these complaints were wholly or partially upheld, but if we go to the Ombudsman we find that 73% were upheld. That is an astonishingly high figure, is it not, of upheld complaints?

  Mr Gray: Those uphold rates are higher than they should be and a big focus of our attention is to make sure that (a) we are getting more things right first time and (b) when people are using our internal complaint mechanisms we are more effective at putting them right. This is something I have discussed with the Ombudsman and the Adjudicator, as to what would be a sensible rate of upholding of complaints through either of those independent tiers. I am clear the rates we have at the moment are too high. It is fair to say on the figure for the Ombudsman that that average figure that you gave of 70-something% reflects an average of two really rather different figures. I think it was a point the Ombudsman brought out herself in her evidence to you recently. It has been very high historically, at about 90% for tax credits and about 30% for other areas. Clearly 90% is way too high. We have not yet had the figures for the current financial year from the Ombudsman but, informally, I understand the figure is coming down for tax credits. It has not yet come down sufficiently. Until, for both the Adjudicator and Ombudsman, we are getting down to uphold rates of, let us say, around 20 to 30%, I will continue to be dissatisfied that we are doing enough in our internal procedures.

  Q45  Chairman: Colleagues will explore this with you, I am sure, and they will want to talk about tax credits and all that but I have one final question before I hand over. One of the Government's mantras about public services is to do with choice. Choice and personalisation. What do these things mean for you?

  Mr Gray: Given the point you started with, that in a sense people do not very often have a choice as to whether they use our services at all, the issue is mainly about the way in which we provide services for people. I think a particularly relevant consideration at the moment is the channel of contact with us. Traditionally, in the sort of Inland Revenue and Customs & Excise of 20 or 30 years ago, the great majority of the material would be being done in written communication. We have progressively moved to more and more of the contact and the business being transacted over the telephone, which our surveys of customers suggest is a welcome direction and now, in more recent years, we are of course moving to increasing use of online services. We are seeking to tailor the services we are offering and to give a degree of choice to people as to what channel they would prefer using in conducting their business with us.

  Q46  Chairman: This is exactly what I wanted you to say something about. When Peter Gershon came to talk to us sometime ago when he was starting his efficiency system, we asked him about all this and he obviously thought—and I do not have his exact words—that it was daft that the Revenue were giving people choices about how to submit their tax returns. I remember him talking about the cheap airlines and saying that they do not give people a choice whether they book online or not: "You do business with us and you do it online." We had a little exchange about that. Surely choice implies that people can deal with you in whichever way they find most comfortable?

  Mr Gray: It does but we certainly have aspirations, if I may put it like that, for the way in which people do business with us shifting in a particular direction. If I could give you one example: the Government decided a couple of years ago, following a review that Lord Carter undertook of our online services, to move towards significant mandation for businesses in filing information and returns with us.[3] As far as small businesses are concerned, over the last couple of years, where we have not moved yet, at any rate, to mandation, we provided a financial incentive to smaller businesses to file online with us. I think choice can be influenced, if I may put it that way, because, given the overall targets that ministers have set for us in terms of cost reduction as well as an increased effectiveness, certain channels are cheaper for us to operate.

  Q47 Chairman: This is what we had the argument with Peter Gershon about. There is a conflict between the imperative for efficiency and the commitment to choice.

  Mr Gray: I am not sure I would use the word "conflict". I think there is a degree of tension and balance you have to strike in these things.

  Q48  Chairman: I am asking you where you are striking it. TaxAid say, "people with tax problems want a local Revenue office where they can talk to a well trained staff member face-to-face in their own language. Many of these local offices are scheduled for closure on cost grounds and being replaced with phone and website access. So consulting with users on this issue would be something of a charade."

  Mr Gray: I think there are a number of generalisations in that statement of theirs, if I may say so.

  Chairman: That is why I read it to you.

  Mr Gray: It is clear that some of the people doing business with us strongly prefer and probably have a greater objective need for a face-to-face service rather than telephone or online. We are seeking to reflect that. At the same time, with the modifications we have made in our frontline enquiry centres over the last year or so, where we have been deliberately introducing into those premises direct telephone links to our call centres, we are finding that the majority of people who have traditionally come into one of our frontline offices and who only had the option once they got there of having a face-to-face conversation with a member of staff, when they see the facilities we are providing for them to use a telephone are very happy and feel better about using the telephone. The last point I would make in relation to the TaxAid comment is, yes, it is true that we are now going through the process of a series of regional consultations with a view to closing a significant number of our offices around the country, but I and ministers have made absolutely clear that, although the proportion of our staff in smaller dispersed offices will reduce and the amount of staff work being done in large centres will increase, we have made a commitment that comparable face-to-face services will be made available in all the locations where they currently are, either in the existing premises or in alternative premises; for example, increasingly in partnership with other parts of government, with the voluntary sector and so on. There is a distinction to be drawn about where, if you like, the back office work is being done and where the face-to-face services are.

  Q49  Chairman: All the evidence shows that people are happier with services where they have face-to-face contact with people and they are unhappiest with services where they have automated lines and call centres, yet the whole of direction of travel is away from one towards the other.

  Mr Gray: I am not sure, if I may say so, that all the evidence does point in that direction. The evidence is mixed. People certainly do not like dealing with call centres—and the evidence does show this—when they have to wait long periods of time. They do not feel they are having their business dealt with effectively. I think there is quite a lot of evidence around that with well-run telephone contact centre operations and good performing online services, a significant proportion of people do find that a better way of doing their business, not least because, with current labour market conditions, a lot of people want to do things outside the conventional 9.00 to 5.00 opening hours. I am not saying it is true of everybody but it is true of a significant number. That is a balance which I strike.

  Q50  Chairman: I am going to start a campaign for real people, but I see you are not going to join, are you?

  Mr Gray: I hope I am still one, and I still have a lot employed in the organisation.

  Q51  Jenny Willott: You were at DWP before.

  Mr Gray: Indeed.

  Q52  Jenny Willott: As another department that has had very high levels of complaints, particularly to the Ombudsman, I would like to ask you some questions around the comparison between the two. I understand you were the Consumer Champion at DWP on the board. Could you tell us a little bit about what that involved.

  Mr Gray: When I took on the role it was an innovation and, in a sense, I was not given a detailed job description of what was expected.

  Jenny Willott: That sounds like being an MP!

  Mr Gray: I sought to undertake that role, as you say, as a member of the board, as a kind of champion and influencer around the organisation. I sought to promote a significant increase in the amount of dialogue that the organisation was having, both with customers directly and with customer representative organisations. If you like, I sought to be a voice in the organisation so that, when an issue was under debate or discussion, I would take a particular interest in an advocacy for the customer viewpoint.

  Q53  Jenny Willott: Is there a Consumer Champion at the HMRC?

  Mr Gray: I have decided not to have a single person with that title. The difficulties and the drawbacks, if I reflect honestly on my DWP experience, are that if you say in a very large organisation, "Here is one person who is the Customer/Consumer Champion" there is a risk that other people react and say, "They are looking after the customer." In HMRC, as we have developed over the first two years of the organisation, we have sought to take a number of steps to ensure that looking at things from the customer perspective is embedded in all parts of the organisation. A particular part of our organisational structure which we introduced two years ago and have been rolling out is what we have specifically called our "customer units", which is not people who are engaged in the sort of day-to-day frontline activities but significant groups of people whose sole rationale in the organisation is to make sure that in all of our business decisions we are progressively improving our information about how customers see us, developing our research programmes, developing all of our customer insight programmes. I am feeling at the moment that is a more powerful approach than just having one person on the board who is a Customer Champion. I am looking to myself and all other members of my board to regard that as a significant part of their role, and two of my fellow board members do have direct responsibility for overseeing our Individuals Customer Unit and our Business Customer Unit.

  Q54  Jenny Willott: Given that both HMRC and DWP have very high levels of complaints, and I believe that HMRC has a slightly higher level of upheld complaints by the Ombudsman, which of them, from your perspective, deals better with customer complaints and why?

  Mr Gray: I am not sure that, overall, I see too much difference between the two. Perhaps I could address the direction in which I am seeking to change things in HMRC, to some extent picking up lessons from DWP but picking up, more generally, best practice from other large customer-facing organisations. My concern—and it was also true in DWP—is that there is a bit of a history in the former Revenue departments of having complaints handled in specialist complaints handling units. That is a good thing, in one sense, in that you have specialists dealing with this, but I see a great risk that there is then a sort of divorce from people doing the job day-in-day-out. One of the directions that we are just introducing in HMRC, therefore, is to make directors of each of our individual business units directly accountable for complaints handling within their part of the business. At the moment, we do not have information systems as good as I would like to be able to track that, so that I personally and my other senior colleagues can rigorously hold each of the different areas of business to account. It goes back to the some of Chairman's questions at the beginning. We are just about to roll out a new integrated complaints management information system in which we will have comprehensive data about what is the nature of the complaint by business area and by type of customer, because I am particularly anxious to make sure we are adequately picking up diversity issues within the complaints process. We will be introducing, from the spring, as the new system rolls out, monthly reports to my senior executive committee which will be analysing the latest month's data in terms of what has been happening on complaints across the different bits of the organisation; in particular—and this is the other main point I would make—to make us significantly better than we are at the moment at learning lessons from complaints and being faster and slicker than we are about identifying some trends, so that we then introduce change in the business processes. I think we have done quite a number of things already in HMRC—and I can talk about that later if you want me to—but I think we need to get better at doing that. At the moment, we are not sufficiently systematic at spotting what is going on, holding people to account, but, most important of all, moving, if you like, from curing to prevention more systematically.

  Q55  Jenny Willott: Why were the numbers of complaints and the way they were dealt with allowed to escalate so much before anything was done to tackle the internal complaint handling process?

  Mr Gray: I do not think I accept that nothing was done. The Committee had a hearing 18 months or so ago, to which my predecessor and I came, following the Ombudsman's special report on tax credits. In the first year of the operation there clearly were very significant operational strains and stresses. The key priority at that time was seeking to do our level best to overcome the operational issues. I think, sadly, the handling of complaints at that time was less good than it should have been. There were some difficult trade-offs to be struck. If the choice was between putting resource into satisfactory retrospective sorting out of complaints and keeping the show on the road, the choice was made to put more effort into the latter. I took a particular responsibility when I was Deputy Chairman for spending a large amount of my time overseeing the tax credit business and over the last 12 or 18 months we have put in place progressively better procedures for complaints handling; in particular, we have introduced the concept of caseworkers. Since that system has been running from the spring of last year, it has been making a significant improvement. We are still in nothing like as good a position as we should be on tax credits complaints handling but I think we have turned the corner and we now have in place better procedures, increased resourcing, which I hope is going to maintain that improvement.

  Q56  Jenny Willott: If you had been the Chairman at the time, what would you have done differently?

  Mr Gray: Nothing, I think. It is always tempting, with the benefit of hindsight, whether you were there yourself at the time or not, to say, "I would have done something very different here". The way in which the priorities were tackled still seems to me, with the benefit of hindsight, to be right. It is very important point to note that something like 80% of the complaints we get on tax credits relate to tax credit overpayments. It is not very surprising, when people have an overpayment and are faced with a request from us to repay, that they do not like that. I think that is the main reason why such a large proportion of our total caseload of complaints across the department does arise in relation to tax credits. The decision I took 18 months ago was to put significantly increased resource into dealing with the handling of disputes of overpayment where a significant backlog had built up. That backlog has now been cracked. I do not expect, frankly, to get to a position where nobody complains about overpayments in future, but I think we have got into a much better position on handling them.

  Q57  Jenny Willott: Is there anything you have learned from the fiasco on tax credits that is transferable to other departments in terms of complaints handling?

  Mr Gray: Two things probably. One is the caseworker approach. We are looking to see whether there is scope for adopting that elsewhere within our department and I think it is a transferable lesson elsewhere. The second is this. Particularly once a significant backlog of complaints starts building up, something I would have done better—to come back to your earlier question—is to make sure, even if we are not in a position to resolve complaints as quickly as possible, that there is a system for immediately acknowledging a complaint and making a contact with the person complaining, giving them a point of contact for the future. That, again, is one of the things we recently rolled out in tax credits. We are aiming now, within 48 hours of every complaint that comes in, to make sure there is an interim response, so that the complainant knows their complaint has been logged and received and they have a contact point if they want to come back again.

  Q58  Chairman: That is the people point. You brought the caseworkers back because you found that people were better than people just pressing buttons on computers.

  Mr Gray: I think that is slightly unfair. We still have people dealing with things, not buttons on computers. But giving an individual person the oversight and responsibility for seeing a particular bit of work done through from end to end, rather than transferring it on to other people, was not being done automatically by magical computers.

  Q59  Mr Walker: You said something very interesting at the beginning of your evidence session. You said that the great majority of the people you deal with do want to do the right thing. I would completely concur with that view. The vast majority of people, the scores of people who have come to my surgery over the past two years, have wanted to do the right thing as far as reporting increases in earnings are concerned to HMRC. Indeed, they have done the right thing, they have conveyed their change of circumstances to your organisation. They have done that on two or three occasions and, having done this, they then receive a letter saying they owe a large amount of money back. They write back saying, "But we notified you of our change in circumstances" and they get a letter back saying, "We accept that you notified us of your change of circumstances, however our computer was not working at the time, so we could not update it, and you should have known—you should have known—that we had not updated your information, therefore it is incumbent on you to pay the money back." I think that is a very strange approach to so-called customers. It reminds me of what banks do. As you know, at the moment banks are getting quite a lot of heat on them for charging exorbitant fees to their account holders for accidentally going overdrawn by a few pounds. It does strike me that this approach may be one of the reasons why so many of the complaints have been upheld against HMRC when it comes to the overcharging of tax credits, because what you are doing is making your mistake their mistake, and they are in a far weaker position to rectify that mistake than you are because they are the economically weaker party. Does this concern you? If it does, how are you going to address it?

  Mr Gray: The fact that we have so many people to whom we are not giving as good a level of service as we can does concern me. As far as the specific on how we handle tax credit overpayments, that is something which we have looked at and we have reviewed in consultation with voluntary sector bodies. I think we touched on this in your earlier tax credit hearing. It led to a revision, discussed with lots of external parties about our relevant code of practice, Code of Practice 26, in which we sought to clarify and improve and give sharper, clearer guidance, if you like, on how the system is intended to operate. As you may know from handling your constituents' casework, the policy is based on a willingness for us to write off overpayments if two conditions are met: first, that we have made a mistake, but, secondly, that it was not reasonable for the complainant to have spotted that mistake. That second leg is the issue you are homing in on. This approach is consistent with the approach traditionally we have used in relation to the tax-paying population. As I say, we have reviewed and looked at that with ministers. We have sought to improve the guidance. But it does seem to me a reasonable approach for us still to be taking.

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3   HMRC, Review of HMRC Online Services, March 2006 Back