The Inland Revenue conceals the evidence of its failure

The Guardian, October 17 2002

There is the smell of scandal in the Inland Revenue. Two scandals, in fact.

There is a political scandal which reeks of unfairness – that the Revenue have adopted a policy of favourtism towards multinational corporations because the government are too weak and too scared to make them pay their taxes for fear that they will take their investment elsewhere.

And then there is a scandal of organisational failure. We can all see the chaos on the rail network; there is no hiding the decay and delays in the NHS: but the equally alarming shambles of the Inland Revenue’s work against tax cheats is invisible, with the result that its history of mismanagement and underfunding is unrecognised and uncorrected.

These scandals matter not simply because it sticks in the throat of any other tax payer that giant corporations and wealthy cheats can waltz their way around the laws that bind the rest of us; but because the Inland Revenue provide the fuel for the whole public sector. On the best estimate, their favourtism and their failure are depriving our schools and hospitals of more than £20 billion a year.

Within the tax world, the smell of these scandals is unmistakably strong. If you ask specialist accountants or tax inspectors if they have heard of them, it’s like asking an ordinary civilian if perhaps they have heard of Elvis Presley. But outside that specialist world, the smell is still only faint, because the board of the Inland Revenue are doing what all bad organisations do when they are in trouble – they are trying to hold the lid down on the truth.

In July, in the Guardian, I wrote two long stories disclosing the detail of these scandals. The chairman of the Revenue, Sir Nicholas Montagu, replied by writing a long article in a specialist magazine, Tax Journal, in which he simply by-passed the facts. So, in September, I wrote him an open letter in the same magazine, urging him to answer a short list of specific factual questions.

As a simple example of the rule-bending for large corporates, I suggested that multinationals were not being fined like other tax payers when they were caught out being fraudulent or negligent in their returns. I asked him to tell us what penalties the 2,000 largest corporations had paid in the 12 months to March 2001.

As an example of the weakness of the Revenue, I suggested that the Revenue were concealing a disaster in their collection of unpaid National Insurance. Two years ago, their annual report announced that they had found £259 million under this heading, but last year they published no figure. So I asked for it.

I asked him how much undeclared tax had been unearthed by the 1996 Spend-to-Save initiative, which redeployed 2,000 staff and was supposed to yield an extra £2 billion over the following three years; I suggested that the truth was that the exercise had been a monstrous failure.

I asked him to give us figures for the number of cases that had been settled by the two most heavyweight compliance departments; for the number of unfilled posts for tax inspectors; for the frequency of their inquiries into business; and simply for the number of taxpayers who have been prosecuted for the new offence of fraudulently evading income tax.

The chairman of the Inland Revenue has simply refused to supply any of these facts. The Inland Revenue is a public service, funded by public money, collecting money for the public sector. When things go well, it is happy to publish the figures in glossy annual brochures. But when things go badly – and right now, I believe they are going very badly – the lid comes down. It’s insolent, it’s undemocratic, it’s a mask for organisational failure. As the Revenue’s own report on New Performance Measures for Compliance puts it: “What gets measured gets done…. If you can’t recognise failure, you can’t correct it.”

As things stand, the evidence of favourtism towards multinational companies is alarmingly clear. The Guardian stories in July drew on the Revenue’s own paperwork to show how they were agreeing “not to examine in any detail” some corporate tax payments which were suspected of being faulty; giving special deals to chosen companies in breach of their own policy; cutting corners in new law which was designed to clamp down on multinational tax avoidance; and providing a general undertaking not to impose penalties in most cases where big companies were caught being fraudulent or negligent.

In the same way, we laid out the evidence of the calamitous decline in the Revenue’s compliance performance. Its success rate is now back at the same level it reached nine years ago – although nine years ago, the national tax bill was only a third of its current size. The yield for every single specialist compliance department has fallen. This is not the fault of the inspectors but of successive boards which have mismanaged and underfunded the compliance divisions. There is something badly wrong with the management of any organisation which delivers such a powerful pattern of decline.

We might conceivably do something about it – if only Sir Nicholas Montagu would tell us the truth.