Transforming the performance of HM Customs and Excise through electronic service delivery (138-I) Public Accounts Committee 15 Dec 2003

Mr. Gerry Steinberg (City of Durham): The typical PFI scheme for IT which we have come to expect and which comes to this Committee, has a number of points which are always pretty similar: the costs go out of control, it is a licence to print money for the contractors who are lucky enough to get it, it usually does not work properly, it is re-negotiated after a very short length of time, usually costing a considerable amount of money for the taxpayer, it usually does not work after four or five years. Does that ring a bell?

Mr Eland: I have studied other IT projects.

Mr. Gerry Steinberg (City of Durham): No, I just asked you whether it rang a bell or not.

Mr Eland: I do not think that is a description of this programme.

Mr. Gerry Steinberg (City of Durham): So you have read the report then. When I read the report that was exactly the feeling I got. It was not just a feeling, it came out of the page and jumped and hit me in the mouth. In 1999 the original deal with Fujitsu was £500 million; it is now £929 million, double in four years. Why?

Mr Eland: Because, as the NAO report makes quite clear, this is for additional services. That is not a price escalation.

Mr. Gerry Steinberg (City of Durham): Are these the amendments you talked about?

Mr Eland: There are changes in volume.

Mr. Gerry Steinberg (City of Durham): Are these the amendments you negotiated after two years?

Mr Eland: The original contract had an estimation of what the cost would be based on particular assumptions about staffing levels in the department and so on.

Mr. Gerry Steinberg (City of Durham): Come on, Mr Eland, you are flannelling. I do not want any flannel. The fact of the matter is that after two years you had to renegotiate a contract which has cost the taxpayer £500 million and within two years you were re-negotiating and it is costing the taxpayer £900 million.

Mr Eland: No, we have bought additional services.

Mr. Gerry Steinberg (City of Durham): Why did you not do that originally?

Mr Eland: Because, first of all, when we signed the contract we were looking to be contracting as a department because of the work we are doing on the frontiers and in tackling fraud and we are increasing in size as a department and therefore naturally the numbers of PCs we need and so on have to go up.

Mr. Gerry Steinberg (City of Durham): Tell me what had changed so dramatically that it doubled the cost of the contract in two years, doubled the cost of the contract.

Mr Eland: What we have in that first part of the changing contract was an increase in the number of users because of the expansion of the department. It was the additional services we brought on line, such as the national co-ordination unit, some of the case studies which are shown in here. These are all additional services brought in on top.

Mr. Gerry Steinberg (City of Durham): How much more is it going to cost?

Mr Eland: We now have an infrastructure platform planned over the next ten years which will enable us to roll out this e-programme and deliver those significant benefits.

Mr. Gerry Steinberg (City of Durham): Did I hear you say that because of the number of people who were going to use it it was going to cost more and that was one of the reasons?

Mr Eland: No, I am saying that the number of people in the department has changed.

Mr. Gerry Steinberg (City of Durham): So you have doubled the number of people in the department and still only 1% of the people actually use it to put VAT onto the internet.

Mr Eland: No, we have not doubled the number of people in the department. We have increased the number.

Mr. Gerry Steinberg (City of Durham): By how many?

Mr Eland: We have changed the way in which ---

Mr. Gerry Steinberg (City of Durham): By how many?

Mr Eland: About 3,000.

Mr. Gerry Steinberg (City of Durham): Three thousand extra people working now.

Mr Eland: The original contract was signed on the basis that we would be declining in numbers. It was due to go down to 18,000 and we are now 22,000.

Mr. Gerry Steinberg (City of Durham): How did you get it so wrong then?

Mr Eland: It was not a question of getting it wrong. It was a question of change in policy which brought those additional people in.

Mr. Gerry Steinberg (City of Durham): You certainly did not get it right because you have 3,000 extra people in.

Mr Eland: It was because of a change of policy that we brought those additional people in, not that we got it wrong. It was not that we got it wrong.

Mr. Gerry Steinberg (City of Durham): If that is getting it right, heaven knows what getting it wrong is like.

Mr Eland: We were working on one set of plans when we originally signed the contract. Policy changes since then have led to us expanding.

Mr. Gerry Steinberg (City of Durham): So because you expanded the number of staff, because you got it wrong in the first place, it has cost the taxpayer something like £500 million. That sounds pretty typical of the PFIs we have come to expect and love in this Committee. I have to be a little sceptical about using the internet anyway for banking issues or issues which have anything to do with money and I certainly would not want to do it. In my view, it is going to be a very difficult task to get people to go on and do their VAT over the internet. What rather amused me was that there is talk about making it compulsory to register on the internet to pay your VAT, is that right?

Mr Eland: We will look at whether we will make it mandatory in some areas or for certain sizes of business.

Mr. Gerry Steinberg (City of Durham): Is it right that if they get it wrong on the internet then they are penalised?

Mr Eland: No.

Mr. Gerry Steinberg (City of Durham): It is what it says in the report.

Mr Eland: No. If you put in a wrong VAT return, then we would take action against that whether you did it manually or electronically.

Mr. Gerry Steinberg (City of Durham): What happens if it breaks down? What happens if somebody is putting in their VAT return and the internet breaks down and they cannot get it in on time?

Mr Eland: We would accept an alternative routing.

Mr. Gerry Steinberg (City of Durham): They would not be penalised.

Mr Eland: Not if it was not their fault. Just recently with the postal strike we suspended penalties because we knew people could not get their returns in.

Mr. Gerry Steinberg (City of Durham): How many people do you think are actually going to take it up eventually?

Mr Eland: We are looking to get 50% take-up by March 2006 and we would like to get something like 80% taken up by the end of 2010.

Mr. Gerry Steinberg (City of Durham): Just remind us how many have taken it up to now?

Mr Eland: Four thousand.

Mr. Gerry Steinberg (City of Durham): Just remind us whether it is working properly at the moment.

Mr Eland: We have not introduced the new service on which we are basing our take-up strategy.

Mr. Gerry Steinberg (City of Durham): How late is it?

Mr Eland: It is not; it is about two or three months now behind when we had wanted to introduce it, but that is because, in line with this Committee's own report, we are taking the testing of these projects extremely seriously and we are not going to inflict on taxpayers ---

Mr. Gerry Steinberg (City of Durham): What percentage of take-up makes the investment worthwhile?

Mr Eland: Our business case is based on us getting the 50% take-up.

Mr. Gerry Steinberg (City of Durham): You have to get 50% before it is worthwhile.

Mr Eland: Yes, I believe that is so.

Mr. Gerry Steinberg (City of Durham): It gets into profit after 50%.

Mr Eland: That depends on whether you are looking at the efficiency savings or the revenue. The revenue is actually less sensitive to take-up. A lot of that is about us getting the information to equip our offices. The efficiency savings are dependent on take-up.

Mr. Gerry Steinberg (City of Durham): Mr Allan asked about incentives and you said you were thinking about incentives. You do a lot of thinking, do you not, but you do not seem to do much action? You are just thinking of incentives and the thing has been going since 1999.

Mr Eland: No.

Mr. Gerry Steinberg (City of Durham): You are just thinking about incentives. I would have thought you should have been thinking about incentives right from the beginning. What incentives do you hope to introduce? How are you going to make somebody like me, who has no confidence in the internet, not that it does not work but have no confidence in myself being able to use it? How are you going to persuade me that it is worthwhile sending in a VAT form over the internet?

Mr Eland: We are going to offer a business which wants to do that, a range of much better information which they can get in a more accessible fashion. We are going to offer them the ability to use search engines to find the answers to questions quickly.

Mr. Gerry Steinberg (City of Durham): And you are thinking about this.

Mr Eland: No, we are working and we are building this and we hope that it will be running by March next year. This is not a programme which began in 1999. That was when we contracted with Fujitsu to supply our infrastructure.

Mr. Gerry Steinberg (City of Durham): Yes, I remember you have changed it since then at a cost of £500 million.

Mr Eland: This is an e-programme which we began to develop in 2001-2002 and which is a radical transformation of our organisation and which does require a long lead time in terms of planning and putting together.

Mr. Gerry Steinberg (City of Durham): You will of course have done a lot of research on how it has worked in other countries and how successful it is in other countries.

Mr Eland: Yes, we have information from other countries about what they have done.

Mr. Gerry Steinberg (City of Durham): Tell me the results of some of that research.

Mr Eland: We feel that what we are doing is very much in line with what most other advanced countries are doing in terms of the sort of services we are intending to offer.

Mr. Gerry Steinberg (City of Durham): I am not sure whether you answered the question there. Tell me about Canada for example.

Mr Eland: Canada are providing a range of services. They see themselves as leading in that field.

Mr. Gerry Steinberg (City of Durham): Leading in ...?

Mr Eland: In providing e-services.

Mr. Gerry Steinberg (City of Durham): According to the report nobody is using it still.

Mr Eland: I do not think that is how they would see it. They have not produced some of the benefits they were hoping to, that is true.

Mr. Gerry Steinberg (City of Durham): Let us just try to find it in the report. Perhaps the NAO could tell me where I read about Canada. Paragraph 2.10. Let us just look at paragraph 2.10. I thought I had read it. I read these reports every Sunday afternoon. It is the only thing I have to do. My wife takes the dog for a walk and I read these reports. Sad; very sad. It is even sadder when you read reports like this, "The private sector and international comparisons we undertook showed that it can take a long time to secure a positive return on investments in e-services. For example, Canada, which is widely acknowledged to be at the forefront of e-government, found that e-services have not generated any major cost savings to date". Why are we going to be any better than Canada?

Mr Eland: It is a question of timescale. As this report indicates, you have to spend a lot of cost up front. The benefits come later than that.

Mr. Gerry Steinberg (City of Durham): What happens if the benefits do not come?

Mr Eland: We are confident that the benefits are going to come.

Mr. Gerry Steinberg (City of Durham): That was not the question. What happens if the benefits do not come? What happens if in four years' time or two years' time people are still not using it? What will you do then?

Mr Eland: We would have to look at why ---

Mr. Gerry Steinberg (City of Durham): Spend another £500 million to get another system in.

Mr Eland: No, we would have to look at why they were not using it and what we might do to ensure that they did.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.