Well, it was never going to be easy. In the 2005 MIS 100 profiles we previewed the fact that two of the biggest UK government departments – the former Inland Revenue and the erstwhile Customs & Excise – were to be merged to form one über-Ministry, Her Majesty’s Revenue & Customs (HMRC).

This was all a part of Chancellor Gordon Brown’s ongoing commitment to achieve cost savings and deliver joined-up government via the kind of economies of scale and non-duplication of effort that drive similarly ambitious tie-ups in the corporate world. It also made sense: having two separate agencies for tax collection was unusual in the developed world, and in 2003 top civil servant Gus O’Donnell, then permanent secretary at the Treasury, concluded that creating HMRC would be more efficient, effective and provide better customer service. A new head from private industry, David Varney (Shell, BT) was recruited to lead the mega-merger.

But few mega-mergers come close to this marriage of convenience in terms of scale – with over 100,000 employees, 906 different offices, 250 different IT systems and managing tax collection of £300 billion-plus. And much of that payback remains to be seen. Leaked staff surveys suggest low morale and resentment, even as moves like streamlining the two systems down to a mere 36 business units proceed apace.

"All in all, errors may have led to as much as £2.8bn in collectable tax being lost to the Exchequer and up to five per cent of processed forms may be handled incorrectly at the government end"


Meanwhile on the systems side it took until this March – 11 months after the creation of the merged HMRC – to fold into one the two separate, then parallel, outsourcing contracts for the Department. The former Customs & Excise IT contract to Fujitsu Services has become part of the existing 10-year £3bn Aspire IT services contract awarded to Capgemini by the old Inland Revenue at the end of 2003. Capgemini continues to be HMRC’s main IT supplier with Fujitsu Services a key sub-contractor, in other words. The deal does contain new elements, however, as support for a new data centre, extended print services and a new support centre for the HMRC is now part of its remit.

Yet things refuse to go smoothly. Some problems are a feature of its complex past: HMRC is trying to clear up errors affecting 1.6 million incapacity benefits accounts caused by IT problems dating back eight years, according to the National Audit Office. This problem was another legacy of the troubled NIRS2 national insurance system sold to the Revenue by Accenture in the late 1990s.

Another service giant’s mixed contribution to UK tax IT came under the spotlight this year as HMRC has had to weather the criticism over the tax credits blunder. This has come down essentially to some £4bn being overpaid to claimants of the £16bn benefit system, followed by a furore when the government tried to claim back £1.5bn of it. HMRC’s main IT supplier EDS has come in for much of the blame, not alas for the first time in the context of UK central government technology challenges. Its software was responsible for a small amount of the error (£209m), but the company has been seen to get away with a compensation bill of over £70m for its trouble.

And in March this year Westminster’s public accounts committee process revealed errors in processing tax returns by HM Revenue & Customs meant that up to 500,000 people may have received the wrong tax bill and that no less than 30,000 taxpayers received incorrect penalty notices, even though they had filed on time. All in all, errors may have led to as much as £2.8bn in collectable tax being lost to the Exchequer and up to five per cent of processed forms may be handled incorrectly at the government end.

The Revenue & Customs organisation is also, as part of ongoing labour belt-tightening, facing a five per cent cut in budgets each year until 2011. As part of that drive the government wants more use of e-delivery and less paper filing. In March HMRC announced a further investment of some £340m to upgrade its online infrastructure as part of a push to universal electronic filing of tax returns by 2012, for instance, something it thinks could save the country £175m in processing costs.

So technology and the efficiencies it can deliver will have to be relied on to achieve consistent performance under that kind of cost-control regime; but given the organisation’s first year, improvements in delivery have to happen.