Review examines merging Inland Revenue with Customs

The Inland Revenue could be merged with Customs and Excise under a review of the tax system announced yesterday in response to the crisis over tax credits.

Gordon Brown, the Chancellor, insisted that the Treasury's review was designed to "build on the success" of the two organisations. But the Tories said the move was an admission that the tax system was in chaos after hundreds of thousands of people had their payments delayed under the new tax credits system.

The review, chaired by Gus O'Donnell, permanent secretary to the Treasury, will aim to cut costs to taxpayers "through closer working or organisational change". Officials said that nothing was ruled out, but insisted that no decisions about the future of the two organisations had been taken.

A Treasury spokeswoman denied that the review was linked to the tax-credits affair. However, Treasury ministers are said to be angry that they are held accountable to Parliament when officials in the tax collection agencies have been responsible for the mistakes.

Michael Howard, the shadow Chancellor, said: "This review is an admission that the Inland Revenue and Customs and Excise are in chaos."

He demanded the sacking of Dawn Primarolo, the Paymaster General, after she told MPs yesterday that ministers had not been told about the Inland Revenue's decision to sell its buildings to a company based in the tax haven of Bermuda.

John McFall, Labour chairman of the Commons Treasury Select Committee, criticised her, saying she had "ministerial responsibility but not ministerial knowledge" of the deal.