How far is this tax fiasco down to IT?

News Analysis

How far is this tax fiasco down to IT?

A report released last week by the Treasury Committee says HM Revenue and Customs does not understand the role of IT in tax credit overpayment

The UK government has no real idea how much IT failures contributed to the tax credit debacle that saw claimants overpaid by £1.8bn in 2004-2005, according to a key House of Commons committee.

The Treasury Committee report, published last week, was damning about HM Revenue and Customs’ awareness of how its computer problems contributed to the overpayment. “We have seen nothing from the department attempting to assess the contribution made by IT system error,” the report said.

Without this knowledge, the committee said, HMRC cannot expect to improve the running of the tax credit system. “We recommend that the government undertake a complete analysis of the incidence of IT system error and the extent to which it causes or contributes to overpayments, and that it publishes that analysis,” the committee’s report said.

In July 2003, the government blamed computer problems for the majority of the failures during the introduction of the tax credit system that went live in April that year. After the system went live, hundreds of thousands of claimants had their payments delayed.

According to the National Audit Office, software problems resulted in overpayments of £184m in 2003-2004 and 2004-2005, and that HMRC was “continuing to investigate the reasons for other incorrect payments caused by system miscalculations”.

However, paymaster general Dawn Primarolo, the government minister responsible for HMRC, told the Treasury Committee earlier this year that computer problems had largely been resolved. “IT performance has been significantly improved. In total there have been 300 improvements made to the system since April 2005.”

A new software release introduced in November delivered “real improvements in operational performance”, she said.

This account conflicts with those from people working closely with the system. The PCS, a civil servants’ union, told the committee that although the identification of computer errors had improved, problems persisted.

“The system is not user-friendly and continues to be often unavailable at key times… Our members report continuing problems with the interface between the [tax credits] computer system and treatment of data that HMRC operatives are forwarding for inclusion (such as a claimants’ change of circumstances),” said the PCS.

The Citizens’ Advice Bureau, which advises claimants, told the committee the system made it difficult for claimants to change details and sometimes records were lost all together. It was then difficult to get them back onto the system.

However, Primarolo did not acknowledge significant ongoing problems with the system when she appeared before the committee, and denied there was a problem with unplanned downtime.

“The computer has downtime in order for it to have the software put on to it… I have no information… that the computer was repeatedly going down… This idea that it is repeatedly not available and you cannot get access I disagree with.”

More detail and clarity on the lessons that may be learned from the tax credit fiasco could be useful in avoiding such problems in future government IT projects. However, this information may not be available until the National Audit Office undertakes an investigation into the IT procurement behind the tax credit system.

The National Audit Office has not yet said whether it will take up the Treasury Committee’s recommendation.

HMRC, in an initial response to the report, said the tax credit system had benefited millions of people and welcomed the committee’s endorsement of the principles underlying the system. It said it would respond officially to the report in due course.

● House of Commons Treasury Committee: The Administration of  Tax Credits (HC811-I)

Related story:

EDS deal ‘appears improper’, say MPs

A compensation deal for IT problems with the tax credit system agreed between outsourcer EDS and HMRC “has the appearance of impropriety, if not the fact,” according to the House of Commons Treasury Committee.

The fact that up to £26.5m of the £71m compensation deal was contingent on EDS winning new contracts with the government was first revealed in Computer Weekly in April.

The report highlights the MPs’ frustration at the confidentiality agreements signed by HMRC and its suppliers. Such clauses hinder the wider public sector in learning lessons.

The existence of a confidentiality requirement “makes it impossible for the house to assess what happened in this particular case, and to seek to draw broader lessons from it about the problematic area of government IT contracts,” the MPs complained.

They also said such terms were restricting HMRC’s ability to answer the committee’s questions. “We are extremely concerned that HMRC appears to be claiming to have effectively ‘contracted out’ of its obligation to be publicly accountable for its administration and expenditure, by virtue of having entered a private contract.”

HMRC officials cited confidentiality clauses when questioned about the compensation settlement with EDS for the system’s catastrophic failure when it was introduced, and the resulting £2.2bn overpayment during 2003-2004.

During 2004 and most of 2005 the government and EDS were embroiled in arguments about compensation, before settling out of court in November 2005 for an agreed payment of £71.25m.

Neither HMRC, ministers nor EDS published the fact that £26.5m of the settlement is contingent on EDS winning new business with the government.

The committee said “We have grave concerns about the wisdom of an agreement which then makes the payment of compensation to the affected government department by the provider of the unsatisfactory service contingent on that provider winning other contracts with government.

“Our concern is not that we believe the contingent payments will influence future decisions by government departments to award contracts, but that it will be impossible to be sure that they have not.”


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