Treasury Committee

Session 2002-03 No. 41                                     23 July 2003


The Treasury Committee today published its Tenth Report, Inland Revenue Matters ( HC 834, Session 2002-03).

Michael Fallon MP, Chairman of the Treasury Sub-committee which undertook the inquiry, said:

"Our report sets out a catalogue of significant administrative failures by the Revenue which Treasury Ministers must address as a matter of urgency. It also raises serious questions about how the department has been led.

The Revenue has struggled to cope with the significant problems that have arisen in the introduction of the new tax credits. At the beginning of July there were still some 220,000 applications that had not been resolved. Over 100,000 of these had been received more than a month earlier. As a result of delays, the Revenue have made nearly 200,000 emergency payments, but cannot at this stage say how many families these relate to. For over 400,000 applicants their first payment was on a later date than notified, and, in addition, hundreds of thousands of people received a payment before they received their award notice.

According to the Revenue the main cause of the problems, which came as 'a bolt out of the blue', is the IT system designed and implemented by EDS. We are extremely concerned that problems on the scale encountered arose at the last moment and did so without any warning. It is crucial that the necessary lessons are passed on to the Department for Work and Pensions before Pension Credits, which will use an IT system being implemented by a consortium that includes EDS, start this autumn. We believe that the Revenue and Paymaster General have a clear duty to pursue vigorously a compensation claim from EDS. We do not expect the additional costs that have been incurred as a result of failure by EDS to be borne by the British taxpayer.

We were astonished at the evidence we heard about the unauthorised suspension of National Insurance Contributions Deficiency Notices. Following hard on the heels of our report on the mishandling of the STEPS PFI project ( HC 184, Session 2002-03, published in February 2003) this is yet a further example in a growing list of communication failures between ministers and officials. Particularly striking is the fact that while Revenue officials were failing to inform the Paymaster General of the problem, ministers in another department no longer responsible for the matter, the then Department for Social Security, were being briefed on the matter by their officials.

We were also dissatisfied by the conflicting evidence given to the Committee by the Chairman of the Inland Revenue and the Paymaster General on the vital question of whether in future the tax haven status of bidders for government contracts can or cannot be taken into account. We expect the Paymaster General to act urgently to clarify the position."

Note for Editors

Mr Michael Fallon is available for comments on the report on 0797 367 6506. The Report can be purchased from Stationery Office Bookshops (tel: 0345 58 54 63). The full text will also be available on the Internet ( at or before 3.30 pm today.