2 Managing the risks to tax collection
and value for money
10. The National Audit Office concluded that the
Aspire contract has provided high levels of service continuity
and systems availability and noted that there have been few major
incidents that have affected HMRC's system performance since the
contract began. HMRC told us that it does not expect tax losses
as a result of the proposed changes. HMRC's risk register includes
reduced tax take as a result of a failure to replace Aspire successfully,
but it has not quantified that risk. [11]
11. We questioned HMRC's ability to manage these
changes given its track record in managing IT contractors. For
example, in 2009 it engaged a contractor outside the Aspire contract
to consolidate 12 separate regional databases to form a centralised
data management system for PAYE and National Insurance. However,
delays and errors following the implementation of the system affected
millions of taxpayers, cost HMRC £78.9 million to fix and
resulted in nearly £1 billion in tax revenue being lost to
the Exchequer.[12]
12. HMRC maintained that it had learned valuable
lessons about implementing large projects through the development
of Real Time Information (RTI) which, while not pain-free, demonstrated
that HMRC could achieve substantial change very effectively. HMRC
also highlighted the successful digitisation of tax credits serving
410,000 citizens, which had been introduced successfully in eight
weeks, built using only in-house resources. HMRC also cited other
examples of change it said it had successfully managed, including
updating company car tax, the creation of a single account space
for businesses, and the digitisation of HMRC's forms to allow
on-line submissions. HMRC welcomed the opportunity to work with
small and medium-sized enterprises (SMEs) and noted its contract
with a small firm called Kcom, one of its first contractors through
an independent bid process, which had resulted in the speedy and
efficient introduction of innovative solutions such as on-line
chat and secure messaging.[13]
13. Yet HMRC's management of the Aspire account suggests
it has been repeatedly outmanoeuvred in its negotiations. The
total cost of the contract reached £7.9bn in March 2014,
which HMRC admitted was expensive while insisting that it had
provided a high quality, stable platform for tax collection. From
that, Capgemini and Fujitsu had secured a combined profit of £1.2bn,
giving a profit margin of 15.8%. HMRC has benchmarked the price
of Aspire services and projects on several occasions. The results
of the benchmarking have suggested that HMRC has often paid well
above market rates. [14]
14. When negotiating cost savings in response to
successive funding settlements, HMRC conceded many of its commercial
safeguards through major renegotiations of the contract between
2007 and 2009. HMRC negotiated away key value-for-money controls
including its right to share in excess profits and to withdraw
activities from the Aspire contract, which was partially reinstated
in 2012. It also negotiated a three-year extension to Aspire in
2007, just three years into the contract, when there was still
seven years left to run. The decision in 2007 to accept a fixed
monthly charge for data centre services from Fujitsu, which accounts
for 23% of Aspire costs, also proved poor value for money, given
the extent to which these costs have been driven down by technological
change. HMRC estimates that, through the negotiations, it secured
savings totalling £750 million.[15]
15. Although progress has been slow and it has yet
to see the business case, the Cabinet Office expressed confidence
that HMRC was taking the right approach and showed a good understanding
of the risks that need to be addressed. The Cabinet Office also
acknowledged its role in issuing the new guidelines, and accepted
that it would also be accountable should efforts to replace the
Aspire contract end in failure. The Cabinet Office maintained
that its 'red-lines' on IT procurement were pragmatic, and if
HMRC's business case was not convincing by next March, there was
the contingency of extending the Aspire contract beyond 2017 if
necessary. However, an extension would risk HMRC paying more for
technology than it otherwise would due to the absence of competitive
pressures; undermine HMRC's ability to modernise and digitise
its tax collection processes; and service quality to taxpayers
may be impaired. The Cabinet Office told us that while it could
formally recommend that HMRC does not proceed with its change
programme, the final decision would rest with HM Treasury.[16]
11 Qq 30,31,39,107; C&AG's Report, paragraph 6 Back
12
Q 30; C&AG's Report, para 2.9 Back
13
Qq 118.126,135 Back
14
Qq 98,101,121; C&AG's Report, paras 14, 3.14 and 3.19 Back
15
Qq 101-105,132-133,138,171; C&AG's Report, paras 14, 3.7,
3.16, 3.18 and figure 8 Back
16
Qq 221-222,224,240,243 Back
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