2011: The Ballad of Dave Hartnett

This year was not a good one for HMRC or its permanent secretary for tax, Dave Hartnett.

In truth the real damage goes back to the aftermath of the Inland Revenue-Customs merger in 2005, but for Hartnett this was the year when the chickens came home to roost.

Since its formation, HMRC has been in a state of perpetual transformation, where swingeing staff cuts coupled with the department’s traditional technology ineptitude contributed to an almighty backlog of unreconciled PAYE records as HMRC failed to validate its data properly before transferring it to the National Insurance and PAYE Service (NPS).

Each error generated a new record, creating a data mountain that delayed the usual annual reconciliation exercise for two years. The stink made national news headlines in 2010 and brought the department to the attention of various parliamentary committees in 2011.

Politically, Hartnett has been damaged goods since he was forced to apologise for telling Radio 4’s Moneybox programme last year he “saw no need to apologise” to the 1.4m people who were asked for additional amounts to offset their tax underpayments. But things got even worse as 2011 got underway.

The appearances of Hartnett and Dame Lesley Strathie, HMRC’s CEO, to explain the issues to the public accounts committee weren’t much better and fuelled a credibility gap with MPs that was to prove their ultimate undoing.

While the PAYE fiasco was damaging, hearings into the big corporate tax deals, prompted by a critical NAO report in July turned him into a national hate figure who had to go.

Hartnett and his minister, David Gauke, were summoned back to Westminster several times to answer questions from Chuka Umunna and other Treasury select committee members, and the Public Accounts Committee about what Private Eye called HMRC’s “Sweetheart tax deals”.

Private Eye has been relentless in its pursuit of this issue, bringing forward evidence from the Vodafone’s published accounts, for example, that showed it had made provisions for more than £2.2bn to settle its tax dispute over the acquisition of Mannesman that it settled for £1.25bn.

Private Eye also made a meal of Dave’s enthusiasm for networking with tax experts and large businesses such as Goldman Sachs, and branded him “Britain’s most wined and dined civil servant”.

Hartnett was accused of agreeing a deal with Goldman Sachs that reportedly waived interest of “smaller than £10m” on a £30m tax bill on bankers' bonuses paid through an offshore company in the British Virgin Islands.

After protests by UK Uncut calling for Hartnett’s resignation, evidence presented to the Public Accounts Committee in October by whistleblowing HMRC lawyer Osita Mba showed the unpaid interest amounted to around £20m and should have included £10.8m of interest accrued up to October 2005; the total liability facing the bank should have been £43m, not £30m.

When it presented its report into the disputes, the PAC commented: “Our understanding of how this case was settled is inhibited by the imprecise, inconsistent and potentially misleading answers given to us by senior departmental officials, including the permanent secretary for tax.

“In particular, his evidence to the Treasury Select Committee on his relationship with Goldman Sachs is less than clear given his evidence to us that he facilitated a settlement with the company over their tax dispute. We expect far greater candour from public officials involved in administering such an important area of government, especially when there is a question about whether HMRC acted within the law and within its protocols.”

But by the time the report was published in December, HMRC had already announced Hartnett’s impending retirement in June 2012. Chief executive Dame Lesley Strathie also left the department this month after a lengthy period of sick leave, so that she could concentrate on her battle with cancer.

The Strathie-Hartnett saga is laced with tragic symbolism. The year began with a chorus of calls for them to leave the department, and by its end the critics had got their way. Our tax editor Rebecca Benneyworth and many others who know him talk of Hartnett as one of the few effective “tax people” within HMRC and will be sad to see him go.

AccountingWEB member George Gill told of an episode earlier in his career that illustrated this point. When a junior tax inspector, Hartnett, encountered a road-surfacing contractor who worked as a sole trader and thus had no mechanism to issue multiple CIS certificates to his subcontractors. Rather than just say it was a pity but that was the way the system worked, Hartnett got on the phone to Somerset House in London, collared the senior official responsible for the system and told him it had to be changed, and changed quickly. 

Such personal dynamism is laudable when carried out on behalf of a harassed individual, but not so desirable when applied to a multi-million pound tax settlement. Because he was willing to put his head above the parapet and argue about the mechanics of taxation, Hartnett became the public embodiment of HMRC.

But his media appearances and performances in front of MPs - painfully transcribed in the PAC’s evidence (PDF download) and on Parliament TV - demonstrated that an understanding of tax was not the same thing as understanding the mood of the great British public. In truth, with MPs and journalists in the loop, the two are probably mutually incompatible.

Partly through his own ego and arrogance, Dave Hartnett became the scapegoat for HMRC’s failures. George Osborne was reportedly exasperated by Hartnett’s Moneybox blunder in 2010, but stood by him. As the damaging disclosures dripped out during 2011 and pressure mounted, the Treasury finally had to cut Hartnett adrift. It’s a sad end to his public career, but the book is now open on whether or not the assiduous networker will reappear in the next year or so on the payroll of one of the many firms he has had dealings with.

For HMRC, however, there is still a lot of unfinished business ahead. If it’s lucky, the department may not feature as prominently in the national news headlines, but it still has to follow through on several major challenges. The PAYE backlog needs to be cleared before the computer system needs to be rigged up for Real Time Information and the Universal Credit. The government wants National Insurance Contributions, income tax and IR35 to be streamlined and to see movement on its plans for tax simplification. All of these will require a big dose of tax expertise. With Hartnett gone, will his successors be able to provide it?

Comments

Just too many whoopsies!    1 thanks

Vaughan Blake | | Permalink

I do feel a little sympathy for DH.  Many of the problems he has faced are not of his making, but, several of them are and he has not done himself any favours in the way any of these matters have been addressed.

1)  PAYE "fiasco".  In reality a system doing what it is supposed to, just somewhat belatedly.  One needs to ask why this didn't happen on a timely basis.  Problem pre-dates DH's arrival in 2008, but smug responses not helpful.

2)  PAYE coding "fiasco".  Corrupted data escaping via a new integrated system.  Almost unavoidable given the complexity of the beast.  Again problem pre-dates DH's arrival and again DH remarks not helpful.

3)  July 2011 payslip "fiasco".  To say that HMRC were surprised by the number of payslips needed for the second instalment is laughable given that there was also a first instalment six months earlier.  No excuses on this one.

4)  Vodaphone "sweetheart deal".  The accounts provision is in itself a bit of a red herring.  A bit odd though that the company tax advisers were so far wide of the mark with their reserve.  Jury's out on this one.

5)  Goldman Sachs "sweetheart deal".  This for me is the killer.  Just how did this happen and why?  I have been told on many occasions by HMRC that the interest charge is simply "commercial restitution" and not avoidable. The smokescreen DH put up over this alone warranted his removal.

 

The problem now is who follows in DH's shoes?  Perhaps the role could be broken down into several active smaller ones each responsible for different areas.  DH and Dame Lesley were after all only two from:

5 Commissioners

9 Board Members

9 Executive Committee Members.

The fact that a new arrival may not have tax expertise may actually be a benefit.  What is needed at the helm is common sense and a dash of imagination rather than a detailed tax knowledge.  However, looking at Ms Homer's CV - Head of Border Control (left just before the Summer relaxed controls fiasco) and the slight matter of the Birmingham election fraud issue she oversaw one wonders what the other candidates Cv's looked like. 

TaxTeddy's picture

No pleasure to be had

TaxTeddy | | Permalink

Am I alone in this?

While pretty well everything that is mentioned in this article is true, do we really need to rake it over yet again? Yes, we all enjoyed a little Schadenfreude when this story was breaking but really, do we think that anyone else in Mr Hartnett's position would or could have done anything differently? I doubt it.

The problem is not who is at the top of HMRC but the skills and motivation of the HMRC staff on the front line.

We have all experienced difficulties in dealing with HMRC enough times to know that this is a systemic problem and, as the article says, Hartnett just happened to be in the hot seat when it blew up.

The sad part is that for all the supposed digging by the parliamentary committee they have contributed nothing at all to putting right the fundamental problems at HMRC and so we head into 2012 with more of the same heading our way.

Happy New Year

Hartnett's next job

djw090 | | Permalink

Perhaps he will become a consultant to the Greek or Itallian governments. They both need help with the assesment and collection of tax.

You Couldn't Make It Up!    1 thanks

Vaughan Blake | | Permalink

do we think that anyone else in Mr Hartnett's position would or could have done anything differently? 

Lets be clear here.  DH did the following:

1)  Insisted that he had not been involved in the Goldman Sachs settlement when in fact he later admitted that he had. 

2)  Forgot to charge GS interest amounting to £10m.  Having dealt with tax investigations for many years, I find this truly and utterly unbelievable. 

3)  Contrary to HMRC guidelines, took over negotiations and let Vodaphone off over £4bn (repeat £4,000,000,000) of tax.  As an aside, coincidentally, Vodaphone's head of tax is non other than John Connors, one of DH's assistants until 2007. 

4)  Repeatedly failed to follow HMRC procedures in negotiating and settling cases.

So we have, procedures not correctly followed, cockups and lies to cover up what happened.

So my answer is yes, I would think things could, would and should have been done very differently indeed. 

AnnaKournikovasKnickers's picture

The sins of commission

AnnaKournikovas... | | Permalink

At least Dave Hartnett showed up! Dame Leslie has a future as one of our Euro ministers.

HMRC has been failing at an ever increasing rate....

Trevor Scott | | Permalink

... so it is disappointing that the management responsible for the failures were not held accountable at the time and then simply sacked; in at least 2005. 

Much of the tax system is a farce or in a state of chaos, law and logic/reason/fairness perverted, taxpayer money wasted hand over fist, management preventing staff from being effective in order to comply with meaningless targets (which are themselves based upon fiddled figures), employees bullied and harassed until they either submit to being a zombie employee or are simply driven out of HMRC.

It is beyond my understanding how any impartial or credible person could, or would want to, defend the people responsible.

It doesn’t seem as though anything will change as it seems that tax knowledge is a bar to leading the UK’s tax organisation. The new CEO of HMRC, with a dodgy past of being in the thick of election rigging, is none other than Lin Homer. Was she hired to in expectation that she would somehow rig the appalling HMRC staff survey results? It amazes me that government press officers brains weren’t concerned at the press inevitably associating the words “Homer”, “Simpson”, “Vote rigging”, “throwing away the rule book”, “HMRC”, “incompetence”, “idiot”, to create easy/effective/damaging press headlines.

 

Was there Misconduct in Public Office in the 'Hartnett' scandal?

dstickl | | Permalink

Here's a simple QUESTION for the Coalition: "Was there misconduct in public office in the 'Hartnett' scandals and what are you going to do about bringing legal cases against those whose conduct was questionable?"

Common Law - as set out in CPS guidance [e.g. via http://www.cps.gov.uk/legal/l_to_o/misconduct_in_public_office/] in UK - seems to me to be the basis of the concept of "Misconduct in Public Office", and so could be applicable in 2012!

My suggestion for first up is: Dave Hartnett. Let's have some real heads roll, rather than the present vogue that "Assistant Heads will roll!" in HMRC, e.g. the HMRC whistleblower.

Also this would incentivise Lin Homer - who in my opinion seems to me to have form already based on reports in the media - to (in those wise naval words of the good old Duke of Edinburgh) pull her finger out.

 

BTW: An explanation of why the Coalition has not pursued this line so far would be most interesting.   Are they trying to protect Gordon Brown from the possibility of such a charge of "Was there misconduct in public office in the 'banking' scandals?" OR   Are they awaiting the Chilcot report?

Jon Stow's picture

Gordon Brown's cost cutting...

Jon Stow | | Permalink

... led to an over-reliance on technology rather than people, by which I mean HMRC staff who actually understand tax. Dave Hartnett did work at the coal face once, and I had hoped his successor would also be a former Inspector of Taxes rather than some bussed-in civil servant from elsewhere (with the greatest respect of course).

The budget cuts imposed by G Brown have been seriously detrimental to HMRC's ability to function effectively. I was in a room with Dave around three years ago when he complained about Brown's funding cuts, which were no doubt rather counter-productive from the Treasury's point of view. The Coalition expects the department to make more cost savings.

Dave is not the best diplomat of course. For most of his professional life he was probably more effective being rather undiplomatic.

 

 

Undiplomatic is OK if others resist doing the right thing, e.g.:

dstickl | | Permalink

Undiplomatic is OK if others resist doing the right thing, e.g. of removing anomalies such as the "fiscal horror" - CIOT's words apparently - of IR35, which resisters of economic growth seemingly wish to preserve! 

However some people just dig in, as exemplified in the Gauk-ward "yawn-like" responses to my MP's letters trying to get IR35 amended by fixing SI 2000/727 section 7.1 step one, to give some sensible cost allowances room for the "excluded middle" of hard workers.

Regarding Jo Stow's comment of "bussed-in civil servant from elsewhere (with the greatest respect of course)" may I quote the following from Private Eye No.1304 23Dec'11-12Jan'12 p3 c2 please:

QUOTE The choice of Lin Homer to replace HM Revenue and Customs chief executive Dame Lesley Strathie, who's retiring on health grounds, suggests the department is determined not to learn the lessons of the Hartnett affair.

Homer was chief executive of Birmingham city council during its monumental electoral fraud scandal of 2005 when, an inquiry found, the council "threw the rulebook out of the window". She also presided over an asylum system described as "shameful" by a 2008 Independent Asylum Commission, running first the Immigration and Nationality Directorate and then the Border Agency between 2005 and the start of this year, while Eye 1266 reported her Hartnett-style lunching with companies operating government contracts. ENDQUOTE

Given the "joint enterprise" legal concept as recently exemplified by the "Lawrence" charges, one has to ask: Are we witnessing a "joint enterprise" of "misconduct in public office" when we view the apparent double standards re big and small businesses, especially regarding the inertia to fix the "fiscal horror" of IR35?

AnnaKournikovasKnickers's picture

joint enterprise" of "misconduct in public office"

AnnaKournikovas... | | Permalink

You need to get:- Actions Against Public Officials (ISBN:  9781847036353). It's a great read!

"Actions Against Public Officials" costs >£210, apparently!

dstickl | | Permalink

Gosh: "Actions Against Public Officials" (ISBN:  9781847036353) costs more than £210, apparently, today on Amazon and on abe! 

Seems I'll have to get some monetary donations for an anti-JEMIPO/IR35etc campaign ... anybody out there care to join me in a campaign? If YES, then please email votet@hotmail.co.uk

In the meanwhile, it's my opinion that the alleged "joint enterprise" of "misconduct in public office" at HMRC etc seems to me to include - but is not restricted to - Dave Hartnett and Anthony Inglese.

Here's another quote from Private Eye No.1304 23Dec'11-12Jan'12 p3 c2: QUOTE The [forthcoming NAO?] review is also likely to pose tough questions for HMRC's top lawyer, Athony Inglese, who repeatedly told MPs, under oath, that his lawyers were "involved throughout" the Vodafone case, when they were not involved at the most crucial point. He also approved the erroneous Goldman deal after the department's "high-risk corporates" board had rejected it. ENDQUOTE

carnmores's picture

if you think DH was bad you should have seen Mr Inglese

carnmores | | Permalink

HMRC counsel's appearance before the select committee as an example of obfuscation, not answering the question and trying to bring in 3rd party correspondence to be read with the legislation it was masterly , it made yes minister look tame by comparision - you can catch up with these programs on the marvellous BBC parliamentary channel and there are plenty of repeats too! 

AnnaKournikovasKnickers's picture

ISBN: 9781847036353)

AnnaKournikovas... | | Permalink

£210???  Wouldn't know........Got my copy from the ICAEW library.

 

Luv

 

Anna