Cable, Goldsworthy, Farron and George quiz the Chancellor

5.05.41pm BST (GMT +0100) Wed 25th Jun 2008

' . .Is it not the case that there is a growing diversity of data breach, involving not merely CDs, but memory sticks, laptops and paper files, and a growing variety of places where these things are lost, including on trains, in backs of cars and in bars? . . '

[Jun 25] Dr. Vincent Cable (Twickenham) (LD): To date, the semantics of incompetence have been reasonably clear. We have had "systemic failure", which is the responsibility of Ministers, and "procedural failure", which is the failure of individual officials. We now have something new called "cultural failure", which is an all-pervasive management mess for which everybody is to blame, but no individual is responsible. Can the Chancellor therefore go back to the question that the Conservative spokesman fairly asked him at the outset: which individuals now carry responsibility, beyond Mr. Gray, who left voluntarily with a golden goodbye?

Is not the Conservative spokesman right that the responsibility indeed lies with the current Prime Minister, albeit for one specific decision that he made? That was the decision to remove 24,000 staff at the Inland Revenue, the consequence of which is that it is now hopelessly ill equipped to handle the growing complexity of the tax system and tax credits. There has been a breakdown in face-to-face relationships, particularly with small businesses, and the institution is hopelessly understaffed to cope with the complexities of tax avoidance and evasion, which are happening on a large scale in the City and among the rich of this country.

Specifically on data security, what lessons have been learned, when we discover from the Information Commissioner that there have been no fewer than 100 breaches of data security since last November? Is it not the case that there is a growing diversity of data breach, involving not merely CDs, but memory sticks, laptops and paper files, and a growing variety of places where these things are lost, including on trains, in backs of cars and in bars? As has already been said, the issue is the integrity not simply of the ID system, but of any centralised Government database of the kind that has been accumulated, for example, under the NHS scheme.

What lessons have been learned about basic management efficiencies last November, when the Select Committee on Public Accounts published a report only a month ago saying that the Inland Revenue had lost £2.8 billion of revenue as a result of false reporting by taxpayers, which it is unwilling or unable to follow up? What lessons have been learned about the Inland Revenue's IT system, when only a few weeks ago the Economic Secretary to the Treasury had to report a programme failure, such that 100,000 poor people were not receiving their payments under the trust scheme?

My final point is this. There are very few private sector companies that are as managerially inefficient as HMRC, but there are some. One of them is BAA, a private monopoly whose reputation for consumer service is legendary in the worst possible way. Is there not an irony in the fact that the failed chief executive of that appalling company is now being appointed as the chairman of HMRC?

Mr. Darling: The hon. Gentleman raised a number of sensible points, but the last one was not particularly sensible. Mike Clasper actually left BAA when it was taken over by Ferrovial in 2006, and some of the difficulties that have arisen happened rather more recently than that.

The hon. Gentleman raised a number of points, but I should like to deal first with his one about cost. Rather like the shadow Chancellor, the hon. Gentleman will not have had a chance to read the report, but he might want to look at chapter IX, in which Mr. Poynter says:

"It should be noted…that my team did not find any evidence of cost efficiency in the form of headcount reduction adding to information security risk."

Mr. Poynter then makes the point that there are a number of people who are surplus to what will be required, but still on the payroll, and they could help with the work. The hon. Gentleman's first point is therefore rather contradicted by what Kieran Poynter found. The hon. Gentleman would have had a better point if he had raised questions about staff morale, which is clearly a problem. However, Kieran Poynter draws attention to the fact that Dave Hartnett, the acting chairman, has gone to considerable trouble over the past six months to meet staff up and down the country. I believe that management are now focused on the need to ensure that they take staff with them.

The hon. Gentleman then raised a number of other matters. He is right that the Information Commissioner has had reported to him a number-about 150, not 100-of cases since November, but they have been in both the public and private sectors. That brings me back to the first point that I made in my statement, as well as to the general point that Mr. Poynter made, which is that there is a generalised problem, in that people have not woken up to the fact that procedures that might have been appropriate when everything was stored on paper files are inappropriate and not robust enough for when information is stored electronically. To put it bluntly, if someone had asked for the records of 25 million child benefit recipients 20 years ago, they could not have had them transferred. We can now do that at the touch of a button. That is why the culture needs to change.

Similarly, in relation to people taking laptops home, which is commonplace in the public and private sectors-my right hon. Friend the Secretary of State for Defence has issued a written statement today on the problems that the Ministry of Defence experienced last autumn-we need to ensure that people realise the nature of what they are carrying. If they are carrying sensitive material, they have to ask themselves whether it is necessary to do so. If it is, they must ensure adequate safeguards and encryption, to ensure that if something goes wrong, no one can access that information. All those things are highlighted in the Poynter report, including areas where HMRC could be more efficient, which the hon. Gentleman mentioned. He drew attention to the fact that changing the IT systems would not only make the system more secure, but help provide the public with a better service.

. . Tim Farron (Westmorland and Lonsdale) (LD): Does the Chancellor of the Exchequer think that the culture of HMRC offices is improved by threats to close them? Does he accept that plans to close the excellent tax office in Kendal, for example, are demoralising staff and will reduce the ability of HMRC to bring in revenue? Will he commit to call off the planned closures, which would only exacerbate the problems identified in the report?

Mr. Darling: I perfectly well understand that when there is any proposal to reorganise or close offices, it is not a happy time for the staff concerned and the management need to do their best to try to address that. I have to say to the hon. Gentleman, however-I appreciate that he may not want to impart this to his own constituents-that every organisation must from time to time look at how it is organised and see whether it can be more efficient and provide a better service. We can always argue about whether a specific proposal achieves that, but to argue that there should never be any change is not a credible position. As I said to the hon. Member for Caernarfon (Hywel Williams), who represents a different party, there is absolutely nothing in the report to suggest that anything in the current reorganisations has had anything whatever to do with the difficulties mentioned in it.

. . Julia Goldsworthy (Falmouth and Camborne) (LD): The Chancellor has acknowledged the dangers surrounding the ability to hold large numbers of electronic records in one place, but does not data security also relate to paper records? Head count reductions do not merely generate efficiency, but result in the holding of large numbers of records centrally. For example, records on small businesses that are currently held in my local tax office in Redruth are all to be moved to Peterborough, and all opening and sorting of mail will also be centralised. Will that not result in more paper records flying around in the post, not fewer, and should not HMRC be considering the issue as part of its wider data protection considerations?

Mr. Darling: Not necessarily. I agree with the hon. Lady that if records are taken from her constituency to any other location they need to be carried securely, but I disagree with the argument underlying the point made by her and by the hon. Member for Westmorland and Lonsdale (Tim Farron). It cannot possibly be argued that structures can never change. I know it can be uncomfortable when local offices close-we have all had that experience from time to time-but the way in which HMRC is currently organised, with several hundred sites, needs to be examined.

The crucial point is that, whether information is transmitted physically in files or electronically, we must ensure that security is at the forefront of our minds.

. . Andrew George (St. Ives) (LD): The Chancellor rather dismissed the concerns raised by the hon. Member for Caernarfon (Hywel Williams) and by my hon. Friends the Members for Falmouth and Camborne (Julia Goldsworthy) and for Westmorland and Lonsdale (Tim Farron) about the management culture that has led to the closure of many local offices. However, he acknowledged in all his responses that the present culture needs to change. Does he not also acknowledge that part of the cultural failure is due to the modern fad of Powerpoint-wielding management consultants who imply that remote and centralised management always knows best? That is a part of the culture that does need to be questioned, because it will otherwise result in a break in the connection with the real world, a loss of established staff and future systems failures.

Mr. Darling: I am not a great one for Powerpoint presentations myself, and I hope that the House will never change its rules to allow anyone to conduct one here, but, to be fair, I do not think that Powerpoint presentations or the lack of them had any bearing on this incident.

I understand perfectly well the points made by the hon. Gentleman and his colleagues about the closure of local offices. Such decisions can be hard, and there is bound to be controversy from time to time. What I do not accept is the underlying premise, and the impression sometimes given by Liberal Democrats-unwittingly, I am sure-that it is somehow possible to make an organisation better and more efficient without any change taking place at any time. I do not think that that can possibly be a sustainable argument.

What must be recognised is that, as Kieran Poynter has observed, there were failings in this instance. We need to address them, and in particular to do all that we can to raise the morale of staff. They understand that change is necessary, but they want to be supported through that change, and that is what the new management are determined to do.