30 April 2004
The UK's new revenue department is likely to be set challenging targets in the forthcoming Spending Review to reduce the Treasury's estimated £32bn–£42bn annual tax gap, it emerged this week.
Gus O'Donnell, Treasury permanent secretary, said the new department, created from the merged Inland Revenue and Customs and Excise, would be expected to meet new Public Service Agreements to increase tax compliance.
O'Donnell told a Treasury sub-committee hearing on April 28 that Customs collects just 88% of the expected yield on VAT, leaving a tax gap of £12bn a year. On direct taxes, the gap is about 8%, or £20bn–£30bn a year.
The department would have to meet these targets on a 'flat cash' basis, with Chancellor Gordon Brown slashing the new department's budget by 5% within four years.
O'Donnell refused to be drawn on the precise savings from the merger but said he expected them to be in the region of 'hundreds of millions of pounds'.
He rejected criticisms from committee members that after the Revenue's fiasco administering tax credits, the merger could lead to a serious disruption in tax collection. 'When you are first, you face risks,' he said.
'There were problems with tax credits. We have been very keen to learn lessons. Everybody is clear that the new management team needs to manage risk to ensure business as usual, and that will be their primary focus.'
He confirmed that of the 14,000 job losses expected, only 3,000 would be lost through the merger. These will be in the areas of data processing and corporate services.
Around 8,000 posts will be lost as a result of new technology – such as e-filing for tax returns – and through efficiency measures expected in the Gershon report in the summer. The remaining 3,000 staff will be redeployed.
But O'Donnell refused to be drawn on the amount of compulsory redundancies expected. 'We will try very hard to avoid compulsory redundancies, we will do our very best.'
PFapr2004
