A powerful committee of MPs has lambasted HM Revenue & Customs for its inability to create an affordable system with a single view on each taxpayer.

The Public Accounts Committee (PAC) also rebuked the department for signing a compensation agreement with supplier EDS, over the failed tax credits system, that guaranteed EDS future contracts.

HMRC forecast it would need to spend a quarter of a billion pounds on central system, if it were to provide a single view on each citizen's tax and benefits. The current systems are “old and not compatible with each other”, the report noted.

The lack of a single view of each taxpayer contributed to a raft of late payments and people becoming further in debt over tax, the PAC said in its ‘Management of tax debt’ report. Over £17 billion of tax is now owed to HMRC, and the number of tax debts are up 22 percent.

Edward Leigh, chairman of the PAC, said the linking of debts in one view was “crucial to effective debt management”. HMRC needs to start a “staged programme” to create such a system, he said.

The committee also heavily criticised HMRC for its handling of a dispute with EDS over a failed tax credits system. Under the agreement, in which EDS was to pay HMRC £71 million, the supplier was guaranteed future work.

Leigh said this sort of agreement should “never be repeated”, adding that the Office of Government Commerce should instruct all departments not to provide guaranteed work clauses in settlements with suppliers.

There were also problems with the rate at which EDS paid the compensation during the first three years after the settlement – it paid less than £1 million compared to the £26 million that HMRC had expected it to have paid by that point.

EDS' slow payments were attributable to the fact it had not won the government contracts it had bid for, the PAC said. Last year, the committee warned it would take EDS 106 years to pay the government at the rate it had been making payments.

EDS settled the rest of the money after HP acquired the company last August, the PAC noted. The final lump sum payment to HMRC is aimed at ending the dispute.

HMRC and EDS signed a confidentiality clause over the settlement, but one that did not prevent the government department from discussing the agreement with parliamentary committees.

In written evidence for the committee, HMRC defended the secrecy of the agreement. “Confidentiality clauses are a common feature in settlements of commercial disputes and HMRC would consider a similar clause in future, provided we could manage successfully all our reporting obligations.”

Last week CIO UK revealed that Phil Pavitt, the successful CIO of Transport for London will take over the IT helm at HMRC  in September.