HMRC’s Performance in 2016–17 Contents

2HMRC’s Transformation Programme

9.In 2015, HM Revenue and Customs (HMRC) committed to highly ambitious plans to transform the tax system by 2020. To achieve this, HMRC is currently running 15 transformation programmes, including the closure of its national network of offices and relocation to 13 large regional centres, making tax digital for individuals and businesses, developing the Customs Declaration Service system, supporting the introduction of Universal Credit and implementing the Tax-Free Childcare scheme.20

10.HMRC told us that its transformation programme as a whole was the right strategic approach. However, the UK’s exit from the EU would lead to about 40 additional projects, equivalent to a 15% extra workload. HMRC would, therefore, need to re-prioritise and consider its capacity to deliver the 250 projects that underpin the 15 transformation programmes. Another major challenge is the significant volume of technological change that underpins its transformation programme.21

11.In the Spending Review and Autumn Statement 2015, HMRC committed to deliver: £1.9 billion efficiency savings, reaching £717 million of annual efficiency savings in 2019–20; £920 million additional tax revenue; and reduced business costs by £400 million. HMRC recognised that it failed to deliver the target savings in the first year of the programme and would fall short of its £717 million target per year by 2019–20. HMRC told us it “went through those programmes in some significant detail and reshaped some of them”. HMRC told us that its latest estimate, underpinned by a number of assumptions particularly on demand management for its customer services, suggests that it will deliver £707 million against the target of £717 million.22 HMRC told us that some of the assumptions behind its 2015 forecasts of benefits and efficiency savings from its transformation programme, particularly around reduced customer demand, were “very aggressive”, which explains the shortfalls to date in the realised savings.23 HMRC is also seeking around £240 million of annual efficiencies arising from change led by operations. HMRC told us that they will come from a combination of headcount reductions and investments in new telephony systems and robotics. New back-end IT systems and automation of processes will also contribute towards the savings.24

12.HMRC told us that in retrospect it would have been more sensible to have implemented projects in sequence rather than have 15 big transformation programmes on the go at the same time. The risks associated with the transformation programme would also have been lower had the projects been implemented over a greater span of time.25 HMRC told us that it does “not believe it is credible … to continue with the transformation programme as it is” in light of the extra workload from Brexit, implementation of policies announced in fiscal events and the extent of technological change built into the transformation programme. HMRC informed us that it is undertaking a reprioritisation exercise and expects to advise ministers by the end of the current financial year on the projects that may have to be slowed down or stopped.26 HMRC told us that it has already deferred some of its digital investment in the child benefit system and has made some savings in its estate programme.27

13.HMRC is carrying out a national programme to transform its estate and this Committee reported on its management of the programme in April 2017. HMRC plans to reduce its 176 offices nationwide to 13 large regional centres and five specialist sites. Since 2001, two thirds of HMRC’s national network of offices has been provided under the STEPS contract, a 20-year private finance initiative deal, between HMRC and Mapeley STEPS Contractor Ltd.28 HMRC told us that it expected to have moved out of almost all the offices provided under the STEPS contract by the time it expired in March 2021.29

14.In its report earlier this year the Committee noted its concern that long leases for regional centres could lock government into holding larger properties than it would need, as technology and working practices changed. At that time HMRC had signed 25-year leases for two of its regional centres. The Committee recommended that HMRC and the Government Property Unit should work together to ensure there was an appropriate mix of medium and long-term leases to provide flexibility for regional centres and hubs so that the Government estate could adapt to future changes in the way Departments worked.30 HMRC accepted the recommendation and responded that it planned to have a balance of 20 and 25 year leases for its major buildings. It stated that, where feasible, it would look at negotiating lease break options or shorter leases. HMRC considered that there was a very clear need to avoid a cliff edge of lease expirations in 25 years.31

15.Since the Committee’s report, HMRC has signed six further leases for regional centres and it would be costly to reverse these decisions. Its regional centre in the North East of England is a site in Newcastle, which it already occupied under a separate private finance initiative deal that runs through to the 2030s.32 Despite accepting the previous Committee’s recommendation for a mix of medium and long-term leases, HMRC has so far signed 25 year leases, and one 20 year lease, for the regional centres, and all of these were without any break clauses. HMRC told us that it also had no plans to introduce break clauses in the remaining four leases still to be signed (for Glasgow, Nottingham, Manchester and Stratford).33

16.HMRC defended its actions in signing only long-term leases, despite accepting the previous Committee’s recommendation for a mixture of lease lengths, by arguing that shorter leases would cost more. HMRC believed the long leases were good deals. It told us that it had received advice that, without long leases, institutional investors would not have provided the necessary funding to property developers to construct the new buildings.34

17.In January 2017, the National Audit Office reported that the total cost of HMRC’s planned new estate over 10 years (including investment and running costs) had risen by almost £600 million (an increase of 22%). The increase occurred between HMRC’s original strategic outline case in late 2015, and its updated strategic outline case in September 2016.35 HMRC told us that the gap between its forecast total cost in late 2015 and its latest forecast total cost had reduced and was now next to nothing. HMRC attributed the improvement to it having achieved good deals on regional centres, in part due to signing long leases.36

18.HMRC stated that it was “unwavering” in believing it had “completely the right strategy” for its regional centres.37 HMRC noted that its regional centres would not occupy the totality of the 13 buildings, which would serve as Government hubs. If its need for space fell, it told us it was confident that there would be demand for the space from elsewhere in the civil service. HMRC also told us that national property controls required different parts of Government to act in the interests of Government as a whole, rather than in the interests of individual Departments.38

20 Qq 94−95; C&AG’s Report, para 10, 2.4 and Figure 6

21 Qq 93−94, 107−108

22 Qq 97, 104, 111; C&AG’s Report, para 2.5

23 Qq 98−103, 121

24 Qq 97, 111; C&AG’s Report, para 2.32

25 Q 94

26 Qq 108−110, 112

27 Q 105

28 Q 150; Committee of Public Accounts, Fifty-third Report of the Session 2016−17, The HMRC Estate, HC 891

29 Qq 167, 168

30 Committee of Public Accounts, Fifty-third Report of the Session 2016−17, The HMRC Estate, HC 891

32 Q 148; Committee of Public Accounts, Fifty−third Report of the Session 2016−17, The HMRC Estate, HC 891, recommendation 5

33 Qq 154−156

34 Q 154−155

35 Report by the Comptroller and Auditor General, Managing the HMRC estate, Session 2016−17, HC 726, paragraph 3.4

36 Q 154

37 Q 146

38 Q 154

10 January 2017