HMRC office closure plan will cost 22% more than estimated, says spending watchdog
NAO chief says it is time for the department to “step back and consider” its estates strategy as HMRC acknowledges its plans to close most offices will take longer, cost more, and save less than expected
A rendering of HMRC's new Croydon Base, as the NAO cast its verdict on the tax authority's office closure programme. Image credit: Stanhope PLC
HMRC’s plans to move staff into 13 new regional offices will cost nearly £600m more and save significantly less than planned, according to a new report by the National Audit Office.
The watchdog called on HMRC to improve its cost controls and plan for worst case scenarios rather than using optimistic assumptions, as the department acknowledged that the original estimates of the benefits of its estates strategy were "unrealistic".
The report found that HMRC has sharpened its management of its current estates contract with private sector firm Mapeley, but revealed concerns about the plan to close almost all of the organisation's existing offices and move staff to new regional hubs.
HM Revenue & Customs reveals new Croydon base
HMRC announces major office closure programme – full regional breakdown and reaction
MoD estate plans hit by short-term cuts and contract weaknesses – NAO
Government to vacate 75% of sites by 2023
Amyas Morse, head of the National Audit Office, said: “HMRC has improved the handling of its current contract with Mapeley and achieved better outcomes, though significant risks remain.
“Looking ahead, HMRC has acknowledged its original plan for regional centres was unrealistic and is now re-considering the scope and timing of the programme. It should step back and consider whether this strategy still best supports its wider business transformation and will deliver the sustainable cost savings it set out to achieve in the long run.”
When HMRC announced its estates strategy in 2015, it estimated that moving staff to new regional offices would save £405m from 2016-15 to 2024-25, and reduce annual estate costs by £80 to £100m a year from then onwards.
But, in September 2016, HMRC produced new estimates which said the total cost of the new estate over 10 years would be £588 million by 2025-26 – 22% more than originally estimated.
The estimated savings from the move are now £212 million, and the annual savings in running costs will not materialise until 2025-26.
“Our 13 new regional centres are an essential part of our work to modernise HMRC and provide an even better service for our customers" – HMRC spokesperson
According to the NAO's report, the HMRC has now concluded that its original plans were “over-optimistic about the availability of suitable properties and carried too high a risk of disruption to its business". The watchdog says HMRC's original plans "involved moving or replacing too many staff too quickly, while delivering other major change programmes in parallel".
The tax authority is therefore reconsidering the scope and timing of some moves, with those delays causing estimated costs to rise and planned savings to fall.
The department has signed two contracts already – one for a centre in Birmingham and another in Croydon. However the NAO says HMRC will face "a demanding timetable to occupy the site as it plans in 2017".
HMRC also believes it will lose more staff than first thought – estimating it could shed up to 5,000 staff as a result of the move to regional centres.
"HMRC has yet to demonstrate how in practice the regional centres will help its employees provide a better service to customers" – National Audit Office
An HMRC spokesperson said: “HMRC’s [staff] are currently spread across 159 offices around the country, many of which are a legacy of the 1960s and 1970s ranging in size from around 6,000 people to fewer than ten.
“Our 13 new regional centres are an essential part of our work to modernise HMRC and provide an even better service for our customers, while delivering annual savings to the taxpayer of over £80 million from 2025-26. It also means modern offices for our staff, with the latest technology, better collaboration between teams, local training and wider career opportunities."
The NAO report, however, questions whether HMRC is clear about how the new centres will support the changes to its running that the department hopes for.
"HMRC has yet to demonstrate how in practice the regional centres will help its employees provide a better service to customers while increasing the efficiency and effectiveness of its compliance work," the report says.
"It should prioritise engagement with its business to identify what features of the new estate will be most important to support working practices that will deliver the outcomes it is seeking."
"Cracks beginning to show"
Reacting to the report, the Public and Commercial Services Union (PCS) called for urgent parliamentary scrutiny of HMRC's plans.
PCS general secretary Mark Serwotka said: “With costs rising and the cracks beginning to show, it is now imperative that HMRC halts these plans and allows MPs and the public to have their say."
The NAO report also highlights how HMRC is considering how it can move some work to lower cost regions such as Northern Ireland.
HMRC’s modelling indicated significant cost differences for each region, the report notes, with London the most expensive, and Northern Ireland the cheapest.
The NAO says: “HMRC acknowledges that in its initial planning, it could have done more to apply these differences in forecast costs per region to direct common work to the lowest cost regions. HMRC is now considering this option as part of its measures to control cost increases."
The report also examined the way that HMRC manages its PFI contract with estates management firm Mapeley. This deal, signed in 2001, covers two thirds of the tax authority's estate.
The NAO found HMRC had "significantly improved its management of the STEPS contract”, responding to the recommendations of past NAO and Public Accounts Committee reports, and achieving cumulative savings of £354m since 2011.
Agency says small firms make up two-thirds of businesses on £330m framework to supply...
Move part of scoping exercise for post-Brexit trading arrangements, MPs...
International trade secretary draws fire for Brexit negotiations complaints
Department begins recruiting for post-Brexit arm’s length body
Cornerstone provide advice on effective approaches for learning management.
BT takes a look at the shifting nature of cyber threats, and how organisations can detect and...
One in four workers in the UK has financial worries. In this article, Elaine Jefferys, Money...
Microsoft shows a few of the ways that governments can turn data into insight