Examination of Witnesses (Questions 40-59)
Monday 15 December 2003
Mr Mike Eland, Mr Len Morris, and Mr Kevin Franklin
Q40 Mr Allan: In terms of the government
targets to get everything on line or electronic service delivery
of some sort by 2005, have they been a help or a hindrance?
Mr Eland: It is useful to have
a target as something to aim for and we are making very good progress
towards provision of electronic services, the 100% provision;
we are at about 80%.
Q41 Mr Allan: Was there any tension between
getting the 80% done well and 100% done less well?
Mr Eland: No. No, we are not compromising
on quality at all in this. We are a department which has actually
had quite a lot of computer services on line for quite a long
time, so it has not put us under that sort of pressure.
Q42 Mr Allan: May I move on to the PFI
which you have in place. If we look particularly on page 9 at
paragraph 22 it talks about reviewing ". . . the costs and
benefits supporting the PFI IT infrastructure contract deal as
they become firmer to confirm that that the deal provides good
value for money". Things have clearly moved on since your
PFI and in particular the July 2003 Treasury report on PFI meeting
the investment challenge, which effectively steers us away from
PFI for IT in exactly the way you have done it, which you signed
up to in 1999, suggesting that what happens is the contractor
actually negotiated anyway into a different kind of structure
which is not so much PFI. Is that a fair observation of what happened
in your case, that you negotiated the structure away from a pure
PFI deal?
Mr Eland: There is quite a strong
element of service delivery in our PFI and has been from the outset.
I do not think it has changed dramatically in nature. The key
feature of our PFI is that it is for the infrastructure services
only, so applications development is done either in house or in
house with partners from outside. That gives us quite a lot of
flexibility in handling the contract. We built in to the original
contract quite a bit of room for flexibility through the change
notice procedure so that we could keep adapting as circumstances
changed.
Q43 Mr Allan: Can we move on to paragraph
2.18 on page 30 which is precisely on this area of the contract?
It depends on what kind of figures we use, but effectively it
was renegotiated from £500 million to £680 million and
there was a significant chunk more added to this contract. The
Report tells us this was because the department's e-business requirements
were not fully formulated. There is quite a major change. Do you
think it was a mistake that your e-business requirements were
not fully formulated when you signed up to a 10-year contract?
Mr Eland: When the original contract
was devised in the late 1990s, our understanding of what would
be required in e-business was very much simply providing a range
of electronic services. We recognised that there would need to
be some changes in it. What we have since adopted is a real transformational
e-programme. It would have been very difficult to have foreseen
that in the late 1990s, but the contract had sufficient flexibility
in it for us to achieve that new set of structures through the
change notice procedure.
Q44 Mr Allan: Was that a planned extension?
There is no sense of mission creep and coming back saying you
have to find £50 million more.
Mr Eland: No; in the original
contract we expected we would require a certain degree of additional
services and also there has been an increase in the size of the
department and therefore the amount of money going into the contract
has gone up because we are getting more volume services out of
it. That first part of the contract was predictable and we did
predict it. The second part has been a totally different type
of e-programme we are dealing with, but we have been able to negotiate
a satisfactory settlement.
Q45 Mr Allan: The last area I want to
look at is one of the specific applications which is our case
study for an electronic VAT and that is in a sense the one which
is likely to impact the most people, it is the public face in
a sense of Customs and Excise for a lot of people. Can I ask whether
it is now launched?
Mr Eland: No, it is not. I sent
a note to the Committee updating.[1]
We did encounter some software problems. We believe we have solved
those software problems, but rather than going into the pilots
as originally planned at the end of November, we have decided
to do another month or so of testing, which will mean, assuming
that we have solved the snags, as we hope, that we will be able
to launch towards the end of January.
Q46 Mr Allan: The Report tells us that
one of the criteria is the number of concurrent transactions which
can be made on the system at a time and suggests a figure of 150,000
concurrent transactions. Is it scaled for that kind of capacity?
Are you going live?
Mr Eland: We are going to build
up through pilots and then a controlled build-up, but we have
built in capacity. I do not know whether Mr Morris wants to add
anything on that.
Mr Morris: On the first pilot
release we will not be near that since we are launching with a
set of pilot traders, about 4,000. When we hit full launch, and
we are still on target for that in July, we will test concurrent
capacity at about two and a half times that peak to make sure
that there are no problems.
Q47 Mr Allan: So it is going to be a
scaled release.
Mr Morris: Yes.
Q48 Mr Allan: Not every business can
use the thing tomorrow.
Mr Morris: We are putting a new
electronic channel on a system which has been running for 30 years
and working very well.
Q49 Mr Allan: May I ask about incentivisation
of businesses and relate that to the security aspect? My understanding
was that in the pilot you received a £50 voucher for using
the system, but you had to pay £50 to get a digital certificate.
I also understand you have abandoned digital certificates now
in favour of pins and passwords. Can you say whether there will
be incentives for business to use the new system and also briefly
explain your security strategy, because it seems to have moved
quite significantly?
Mr Eland: First of all on the
security strategy, we are moving away from requiring a digital
certificate, but we will allow people to use it if that is what
they want. We are providing as alternatives to that pin and password
and what are known as shared secrets, the more you want to go
into the system, the more additional passwords you might have
to have to do that. That is how we are approaching the security.
Q50 Mr Allan: Digital certificates were
a bit of an expensive blind alley then.
Mr Eland: We certainly feel that
it was a significant disincentive to take up but some people would
obviously prefer that degree of security. Sorry, your other question
was . . .?
Q51 Mr Allan: Was on incentives to use
it immediately.
Mr Eland: We are looking at incentives
as part of the take-up strategy we are intending to formulate
for March 2004. We will be looking at things like time to pay
and so on. If you pay by direct debit we will look at whether
we can give some additional time. We are also going to look at
other financial incentives. It is something we are exploring,
but we have not taken any final decisions yet.
Q52 Mr Jenkins: When you read this Report,
when you went through and signed it off, how did it leave you?
How did it make you feel? Did you feel pleased with the Report
or disappointed with the Report or what?
Mr Eland: I feel that we are embarked
on a very good e-programme project and that it is going to be
transformational and provide a lot of benefits to the taxpayer.
I also felt, given the complexity and range of what we are doing,
that actually this is a Report which gives a lot of support. It
recognises that there are already signs that we can achieve the
transformation and I am pleased by that. Of course there are some
parts of it, such as the discussion on consultants we had earlier,
which I would have preferred were not in it, but I think it is
a reasonable Report.
Q53 Mr Jenkins: I am glad you feel that
way. I am glad I am not in your position today, to be honest,
if I had come before this Committee and said I had this Report,
this Report outlines that we set out on a journey, we did not
have a plan, we did not know where we started, we do not know
where we are and we do not know where we are going to finish.
I will tell you why. When you set off, you set off with a savings
projection, if we went down this route, of £4 billion. That
£4 billion was a pie-in-the-sky figure. No business sense,
no analysis, no detailed work, but you set off spending substantial
amounts of taxpayers' money and now you come back saying you may
get £1.2 billion. But it is even worse than that and I shall
take you back through this Report bit by bit and work out where
it is worse. The Chairman started off with paragraph 1.11 where
it says that most of the financial benefit will come from additional
yield. Could you tell us why additional yield is coming into the
department, please?
Mr Eland: Yes; certainly. The
additional yield will come because we will have much better information
coming in which we shall be collecting from a variety of outside
sources. We will have much better means of analysing that so that
in turn we can target our resources more effectively and ensure
that we collect the right amounts of money due.
Q54 Mr Jenkins: You will get better at
doing your job in effect.
Mr Eland: It will help us to do
our job, yes.
Q55 Mr Jenkins: How much are you going
to spend on getting that additional yield in?
Mr Eland: We will spend over the
10-year period, we will spend over £300 million and by the
end of that period we will have achieved an increased revenue
of £500 million a year.
Q56 Mr Jenkins: If you had spent that
money on your paperwork systems and increased extra staff on your
paperwork systems, how much extra would you have got in a year?
Mr Eland: It would depend entirely
where we were putting the staff. There is a limit to achieving
yield purely through putting in additional staff. You have to
have the proper backup for that staff, the proper amounts of information
that you can give them, otherwise you are not going to be using
them effectively. This is about giving real support to our staff
in terms of the information they have about the businesses they
are dealing with and it will enable them to do a much better job
and it will also mean that compliant businesses will have much
lower costs.
Q57 Mr Jenkins: So you did a business
plan, or you must have done a business plan, or you thought you
had done a business plan because you really discounted the fact
that additional resources put in would not achieve the outcome
desired and you must go down the IT route, you must have the information
at the fingertips of your staff to collect this additional revenue.
Right? On page 34 it gives us a classic case of low take-up, very
low take-up on VAT, where 1% of traders actually submitted electronic
returns on VAT. Right? Now you are going to undertake market research
to say why they did not want to take up the option you gave them.
Do you not think it would have been a very good idea to do that
beforehand to find out exactly what the market is and who is going
to take it up before you spend any money on the system? Yes or
no would be quite simple there.
Mr Eland: The view we took at
the time was that it was right for us to give a service to businesses
to enable them to file VAT on line. That was very early on in
attempts to deliver e-business projects and we learned from that,
that you have to provide a lot more than just a simple e-filing
service. It is from that experience that we have been able to
devise what is going to be a very good VAT return capability.
Q58 Mr Jenkins: On your past experience
I am not going to take that on your word and you can understand
that, can you not? You had a pilot scheme; you launched it nationally
in April 2001. This is not "very early on" in IT systems,
is it?
Mr Eland: Not in IT systems, but
in terms of electronic government it is.
Q59 Mr Jenkins: The outcome was disastrous.
Mr Eland: I do not think it was
disastrous. We were merely providing the ability for people to
file electronically.
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