Sinead Moore 10 Jan 2017 01:37pm

HMRC’s “unrealistic” restructuring plan to cost £600m more than expected

HMRC’s plan to cut costs by closing offices and moving staff has been branded as “unrealistic” by the National Audit Office (NAO) in a damning report, which found the Revenue will spend nearly £600m more than they originally planned on restructuring the HMRC estate

The Revenue aimed to save almost £500m by redesigning and significantly reducing its estate, shutting 170 offices and replacing them with 13 large regional centres, supplemented by four specialist sites and a headquarters in central London, by 2020/21.

However, according to the NAO, the 10-year running cost for HMRC’s estate will be 22% higher (£600m) than previously anticipated, with the overall estimated cost now standing at £3.2bn.

The report added that more than half of this is “due to the higher than anticipated running costs for its new buildings”.

As a result, the plan will now save less than half the amount originally forecast with HMRC estimating cumulative efficiency savings of £212m by 2025-26, reduced from £499m from its November 2015 business case.

By 2025/26, HMRC said it expects its annual estate running costs to be £83m lower than they are now.

The NAO also raised concerns about the scale of disruption involved with the planned restructure, which means “moving or replacing too many staff too quickly, while delivering 14 other major change programmes in parallel”.

The timetable of the closures is tied to HMRC’s long-running contract with property management firm Mapeley, which concludes in 2021.

HMRC’s regional centres need to be up and running before the contract with Mapeley ends in March 2021, or it will face increased costs for rent and service charges.

Up to 38,000 staff from the tax authority are currently expected to move large distances – some up to 174 miles – as part of the reorganisation, if they want to keep their jobs.

According to the report, HMRC may lose up to 5,000 staff as it struggles to find suitable property in some of its chosen locations within the time frame set out in its 2015 spending review settlement.

HMRC will therefore need to recruit to its new centres and train new staff, while managing redundancies and the moves of existing employees and operations into new buildings, the NAO highlighted.

“During the transition to regional centres, HMRC must ensure that its service to taxpayers and its ability to collect tax revenue are not impaired,” the NAO warned.

The report also warned that “HMRC has yet to define fully how regional centres will support better customer service and more efficient and effective compliance activities.”

The public spending watchdog revealed that HMRC is now undertaking a review of the proposals, first outlined over two years ago, in order to reduce costs and the risks of disruption.

Options include changing the timetable for opening regional centres, reconsidering their location and size, and reassessing how and when to introduce flexible working practices.

"HMRC has improved the handling of its current contract with Mapeley and achieved better outcomes, though significant risks remain,” Amyas Morse, head of the National Audit Office said.

“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,” Morse added.

The PCS union has called for the restructuring project to be scrapped altogether following the findings.

Mark Serwotka, general secretary of the trade union for civil and public servants and private sector workers on government contracts 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.

“Cutting thousands of HMRC staff in recent years has hit the services it provides to the public, yet the department and this Tory government are ploughing ahead with poorly thought through plans that would mean thousands more job cuts.”

Shadow Chancellor, John McDonnell also called for a halt, describing HMRC’s office closure plans as an “emerging disaster” in Parliament today.

However, a spokesperson for the Revenue confirmed their plans are going ahead as normal.

“HMRC’s employees 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,” the spokesperson said.

“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 Public Accounts Committee is due to hold an evidence session on the HMRC estate on Wednesday 25 January and is inviting submissions of written evidence related to HMRC’s plans before Tuesday 17 January.