HM Revenue and Customs is considering proposals to contract out sensitive tax processing work to India, in what would be an unprecedented step, say the department's staff.
HMRC and its main IT contractors Capgemini and Fujitsu are looking at the potential of outsourcing some tax processing to India, say staff. It is part of an ambitious internal project "Quantum", the aim of which is to save about £205m a year.
Last week it emerged that the British Council is planning to outsource more IT and other work to India and cut UK jobs - arguably a step toward the processing of UK data overseas.
Under current policy tax records go overseas only in an emergency, for fault-fixing purposes. Ministers in this and past governments have always refused to allow sensitive records on UK citizens to be processed abroad routinely, whether that data relates to health, welfare benefits or tax.
One reason for their reluctance is that it may be difficult to control who sees the information - and other countries may have less rigorous data protection laws and enforcement of them.
Against the background of record levels of public debt, the Government may drop the policy of not processing UK citizen data overseas.
Aspire contract cost has more than doubled
The aim under the Quantum project is to cut the costs of one of the Government's largest IT outsourcing deals, the Aspire deal, worth about £8.5bn. Largely because of extra work, the cost of the Aspire contract with Capgemini has more than doubled since HMRC signed it in 2004.
Staff say that HMRC underestimated the future costs of supporting IT when the contract was re-tendered in 2004
But large savings on the Aspire contract will be hard to achieve without a radical solution.
Computer Weekly has seen details of an internal document marked "restricted - commercial" in which HMRC, Capgemini and Fujitsu set out general reasons why the savings of £205m will be a "challenge". The savings will involve a reshaping of the commercial deal between the Aspire consortium and HMRC.
"Success [in achieving the Quantum project savings] is predicated upon complex dependencies," says the document.
It proposes no specific solution to achieve the savings. But a separate memo to HMRC Aspire staff by the Public and Commercial Services Union Capgemini Group says the Quantum project includes a look at the "potential off-shoring of some future work".
The memo adds: "HMRC has asked Capgmini to draw up proposals outlining how they could contribute to the demands for better value. The HMRC Quantum team has been working now for about six months, and is due to produce its report in September".
PCS union not convinced 30% savings possible
The PCS said it is not convinced that Aspire can deliver 30% savings to HMRC while keeping a good service to the public. Tax staff also say that any large-scale cuts could hit HMRC's ability to recoup tens of billions of pounds HMRC is estimated to be owed.
A further problem for HMRC is that cutting Aspire costs could endanger HMRC's efforts to cope with backlogs of work.
Computer Weekly revealed last month that HMRC's backlog of "open cases" - unresolved tax e-records - has risen nearly ten fold from about 2.5 million in 1998 to about 20 million this year. Each open case needs manual intervention to resolve.
Capgemini and Fujitsu want savings re-invested in Aspire contract
The confidential document Computer Weekly has seen says that the Aspire consortium is "absolutely committed" to work towards delivering success for HMRC on the Quantum project. But it also says that money saved will need to go into an investment pot for "subsequent work".
This is because "neither HMRC nor Aspire has additional cash" to fund "essential" change.
HMRC to consider alternative IT delivery arrangements
A third document seen by Computer Weekly says that the Quantum project team is considering "alternative delivery arrangements" including a "review of contractual constraints on Aspire's outsourcing activities".
Outsourcing to India would make sense to Capgemini which has been expanding its operations there. It employs 18,000 of its 92,000 employees in India and has offices in Chennai, Hyderabad, Pune, Kolkata, Bangalore and Mumbai.
Graham Steel, Senior National Officer at the PCS, said: "If sending sensitive taxpayer data to India is being considered by a Department which cannot keep data secure in it's own backyard they must get public support first.
"Secondly how will the proposed cuts in IT services and jobs help close the shameful multi billion pound shortfall in Tax/VAT collection?
"Thirdly why is this debate not taking place in public with elected politicians actively involved? PCS will be making sure they are."
HMRC working with Capgemini to lower costs and improve ways of working
HM Revenue and Customs declined to comment specifically on any of the points we put to its press office, including questions over the potential for off-shoring.
It said only: "Project Quantum is specifically focused on value for money in the IT field. It covers all aspects of how IT is provisioned and used so it is covering business change as well as how we work with Capgemini under the Aspire contract.
"As far as the Aspire aspect is concerned, we are working collaboratively with Capgemini to achieve lower costs and better ways of working. That work is currently ongoing so we cannot comment in detail."
On the likelihood of sensitive e-records going abroad for processing, officialdom is silent. If it does happen, a precedent could be set, and the door opened on government IT work being outsourced to India or elsewhere - China, for example.
Some countries have data protection policies - but it's unclear whether any breaches would ever be reported.
On the other hand, government could save on its annual IT spend of about £14bn a year if work were to be processed abroad routinely.
More to be published on the IT Projects blog