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Sunday Telegraph: Varney turns gamekeeper

Sunday Telegraph: Varney turns gamekeeper: “made his reputation at Shell”

(Filed: 18/07/2004)

David Varney, who will run the Government’s new Revenue and Customs agency, tells Robert Watts how he plans to axe 12,500 taxmen

‘It’s not the money, it’s the challenge.” How often have you heard that from a business grandee paid cash by the truckload? But it’s slightly harder to dispute this claim when made by David Varney, the outgoing chairman of MMO2, the mobile phone operator, who made his reputation at Shell and then at British Gas.

In a little over six weeks, Varney will take a £200,000 pay cut, leave the private sector and begin life as one of Britain’s most pressurised civil servants.

“I had done most things you could do in the private sector,” Varney tells The Sunday Telegraph. “I had a choice: do more of the same, do something in the voluntary sector or the public sector.

“I think all of us benefit from coming into something slightly different.”

Varney will be overseeing the mother of all mergers: that of the Inland Revenue and Customs and Excise, the Government’s two colossal tax departments. As chairman of Her Majesty’s Revenue & Customs (HMRC) he will manage 100,000 people, axe 12,500 and relocate many thousands more.

He will be responsible – in no particular order of importance – for replacing and integrating antique IT systems, deciding what to do with a vast property estate, reducing tax fraud and improving the Revenue’s “customer experience”, whatever that is. Oh, and he’s also supposed to banish child poverty.

And while all that’s going on, he must deliver £325bn of taxes – and rising – to Gordon Brown, the chancellor.

So, there is a challenge . . . but where does he start? Since his appointment in mid-May, Varney – whose manner is that of the affable, no-nonsense pub landlord rather than the dry taxman – says he has been “going for walks” around Customs’ and the Revenue’s district and head offices. And he’s spoken with 100 or so people across the departments.

“It would be silly to come in with a route map,” Varney says. “It’s not a merger that will happen like that. These conversations have been about identifying the low-hanging fruit that will give us the biggest reward for the least risk.”

He has already identified swift savings from better procurement of supplies and improved use of new investment in IT. The encouragement of online tax filing by both business and consumers could, for example, save the Revenue a fortune.

Varney says IT is crucial. He has whittled down to a shortlist of four the candidates to be chief information officer (CIO).

This role may prove to be even more important than his own, because the challenge for the lucky new CIO will be to knit together literally hundreds of different systems across the two departments. The successful candidate should be named by September 1, Varney’s official start date.

Shortly afterwards, Varney is planning to merge the business departments at Customs with those at the Revenue, to create a “one-stop shop” for companies. Until now firms have moaned endlessly that they have to deal with a VATman and then one or more Revenue officials.

“We think we can make early progress here,” he says. “They bring together a good knowledge of big companies.”

He has also consulted PricewaterhouseCoopers, Ernst & Young, Deloitte and KPMG, plus the assorted accountancy trade bodies, to find ways of easing the cost to businesses of complying with the tax system.

These so-called compliance costs are a favourite whinge of business. And they were the subject of a stern Treasury Select Committee report recently. That said, businesses can’t expect a soft ride from this poacher turned gamekeeper.

“You do observe that some corporates, which seem to be very successful at minimising the amount of tax they pay, seem to find the burden of compliance very heavy,” he says sardonically. “But let’s leave it at that.”

Much of the rest of the merger will begin in earnest after April 2005, when legislation for the creation of a single department should have been enacted.

However, by the end of this year 1,000 Revenue and Customs staff who work on policy will be moved into the front part of the Treasury, which is still being refurbished. Varney says the idea is to create a “stronger, fruitful dialogue” between Treasury and Revenue officials on tax policy.

Is this Gordon Brown tightening his grip on tax policy, manifesting his trademark obsession for leaving nothing to chance? Not according to Varney. “This will allow us to have a constructive tension,” he insists. “There should be a degree of difference of view because that sparks a better and more creative process.”

So is this in fact expensive duplication of functions of the sort that the public sector has made all its own? Varney prefers to see it as healthy internal competition, which is fashionable in many private sector businesses. “When you do something like that you get really creative and efficient outcomes,” he says.

And here’s his own little obsession: “I think it is important that there is a mixture of public sector and private sector skills. In other countries there is a much smoother and easier movement between the public and private sector.”

Varney will certainly have to bring his private sector experience to bear when it comes to slashing thousands of jobs. He finds himself one of the chancellor’s great axe wielders, who together are responsible for cutting or relocating 84,000 civil service positions over the next four years – as per the headline news of last Monday’s comprehensive spending review.

Compulsory redundancies are being contemplated by Varney, although he points out that many cuts will come through natural wastage – staff who leave or retire.

He also cites Project Stockholm, a recent efficiency drive he oversaw at MMO2. It managed to reach its cost savings targets without sacking the number of staff initially expected. He says: “One takes the view that if there need to be compulsory redundancies, we’ll talk to the unions first to see what has to be done.”

Despite the looming axe, Varney insists morale remains strong within the departments.

“People I meet in Customs and Revenue are not telling me ‘this merger is a disaster’ or ‘David, this is the wrong thing to do’. They’re telling me they’re up for it, they want to be part of the future.”

He says his time at British Gas has prepared him for the challenge of remotivating armies of functionaries. “When I arrived there, the billing service didn’t work and people were so ashamed that they were saying down the pub that they ‘worked for a utility’.”

Will he sell off the acres of property owned by Revenue and Customs? “There’s a big property report for me to read, but it’s not one of my priorities,” he says. However, he has decided to eschew the palatial splendour of Somerset House, which currently houses the Revenue chiefs. His desk is instead to reside inside the open-plan Treasury.

And have all his walks, the discussions and the mountains of documents left him disheartened at the scale of the task? “I’m still optimistic,” he says, pledging that most of the merger will be completed by the end of his term in September 2007.

“This is a tough assignment, very tough. But that’s not a whinge. I don’t get up in the morning to do the easy things.”

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