Committee of Public Accounts

Press Notice No. 24 of Session 2003-04, dated 22 June 2004


Mr Edward Leigh MP, Chairman of the Committee of Public Accounts, said today that he welcomed Customs seeking to use new technology to deliver better quality public services, but it cannot be acceptable that Customs has already spent huge sums of public money without being confident about the scale of the likely benefits.

Mr Leigh was speaking as the Committee published its 24th Report of this Session, which examined the implementation of HM Customs and Excise's e-programme; the progress made in developing an electronic VAT (e-VAT) service; and Customs' PFI contract with Fujitsu for IT infrastructure. Customs' e-programme is a considerable investment-some £327 million over the ten years to 2010 with a further £250 million for enhancing the Department's existing IT infrastructure under a Private Finance Initiative (PFI) contract with Fujitsu. While continuing to offer paper-based systems, Customs has Public Service Agreement targets to offer 100% of its services electronically by 2005 and achieve 50% take-up by March 2006. The aim is to generate increased revenue and improve efficiency with better information and analysis to target tax compliance and anti-smuggling work.

The Committee found that Customs' e-programme, although at an early stage, is an innovative step forward in using new technology to deliver better quality public services, streamline current processes, and achieve savings. Taxpayers should be able to deal as efficiently as possible with Customs in a way which integrates with their business systems.

It is unsatisfactory that Customs has so far spent over £100 million on its e-programme without a rigorous business case and that Customs is still not confident that its business case reflects the likely benefit to cost ratio for the programme. Customs' original estimate in October 2002 of the financial benefits of £4 billion was not rigorous and they reduced it to £1.2 billion in November 2003. This could fall further, and Customs should now complete a full business case, including all the e-programme costs and supported by sensitivity analyses of benefits and cost.

Customs needs to manage the risks that the costs of the programme will be higher than expected, that take-up of e-services will be low and the benefits from the programme will be delayed. To provide early warning on these risks, Customs should track actual results against forward projections of the costs and the savings expected from improved compliance and efficiencies. These projections should distinguish between compliance improvements expected from the e-programme and those from the VAT strategy.

In implementing the initial stages of the e-programme Customs has not followed good practice in managing aspects of the programme. For example there was poor control over the management of consultancy contracts and a senior responsible owner for the overall e-programme was not appointed early enough. Customs has tightened controls over the management of consultants and is applying the Office of Government Commerce gateway review process to all new IT projects to ensure compliance with recommended practice.

Customs does not have a comprehensive contingency plan to address the risk of IT system failure and its impact on service availability and on the take-up of e-services. It is developing recovery plans for each service under the PFI contract with Fujitsu, which should be brought together into a contingency plan to provide continuity of service in the event of IT system failure. The plan should set out the responsibilities of the Department and the contractor and the events that would trigger their implementation.

The e-VAT service

Customs has made slow progress in providing an e-VAT service. It introduced an electronic VAT return in March 2000 but with little success. After a series of delays it planned a new pilot e-VAT service from January 2004 with a full service in July 2004, although work had yet to be completed on incentives to promote take-up. Before rolling out a full service to its customers, Customs should construct a proper pilot.

There was very low take up of the first electronic VAT return service because it did not offer businesses any tangible benefits. Instead they found the paper based system easier to use. Customs should research the market to establish the likely demand for new services from different customer groups and address business concerns about security, accessibility and usability.

Customs is only now considering a strategy to achieve the 50% level of take-up (some 700,000 businesses) needed in the new e-VAT service to make it viable. Customs is also considering whether to compel certain sizes of business to submit VAT returns electronically but before doing so, should be offering a good quality service which a high proportion of businesses are willing to use.

The PFI contract with Fujitsu

The cost of the PFI contract has increased from £500 million to £929 million due partly to a rise in the volume of Customs' work since the contract was signed in 1999 and partly to new requirements brought about by the e-programme. Retendering the contract would have given better assurance on the value for money of the revised contract, but would also have put at risk existing revenue and the expected benefits of the e-programme which Customs estimated to be nearly £1 billion. Whether Customs struck the right balance in making this judgement is hard to determine while many of the expected benefits remain to be demonstrated.

Mr Leigh said today:

"I welcome that Customs' e-programme is seeking to use new technology to deliver better quality public services. But it cannot be acceptable that Customs has already spent huge sums of public money without being confident about the scale of the likely benefits. Spending so far has totalled £100 million. At the same time, the financial savings expected, once thought to be worth £4 billion, have fallen to £1.2 billion and possibly less. Customs must complete a proper and comprehensive business plan, identifying clearly the expected benefits and when they will be delivered."

Click here to view Report