HM Revenue & Customs will save £110m a year without cutting jobs as a result of a revised Aspire contract with lead outsourcer Capgemini.
The department spends about £740m a year on IT. The original Aspire contract between the department, Capgemini, Fujitsu and BT was one of the biggest outsourcing deals, worth £2.6bn, when it was signed in 2004. The life-time value has now risen to £8.5bn.
According to an HMRC official, the savings will come from modernisation and scrapping legacy systems from the merger between Customs & Excise and Inland Revenue.
The revised deal runs until 2017, and comes on top of savings worth £70m during the first five years of the original 10-year contract.
HMRC CEO Lesley Strathie said the deal was just one of the ways HMRC would cut operating costs. "It signals the intent to bring IT costs down, as announced in the 2009 Budget," he said.
HMRC lost the personal and bank account details of 25 million people who were receiving child benefits when two CDs containing the data went missing. They have never been found.