Legacy IT kit is behind 80% of UK taxman's pandemic costs, says spending watchdog

An ageing IT estate is responsible for the bulk of the UK tax collector's costs in adjusting to the COVID-19 pandemic, according to a report from Parliamentary spending watchdog the Public Accounts Committee.

In a review of the tax authority's performance for 2019-2020, the Public Accounts Committee (PAC) found HMRC spent too much of its IT budget on patching up legacy systems rather than modernising them.

"The COVID-19 pandemic has shown the importance of an effective tax administration system. There is a strong case for investment in a modern IT system. Of the additional costs incurred by HMRC as a consequence of the pandemic, the largest element, as of 11 September 2020, was the cost of IT," the report said.

That came to £53.2m, or 80 per cent of the total.

"HMRC told us that it spends too much of its IT budget on maintaining its legacy estate and not enough on investment for the future and modernisation," the report continued.

The department accepted it needs to redress the balance between spending too much on legacy systems and not enough on investing for the future. In the November 2020 spending review, it got £268m from the Treasury to fix outdated IT and ensure its core systems are secure and support better administration.

"It remains to be seen whether this is sufficient to urgently address the long-standing issues the Department has identified," the PAC said.

The report highlighted areas of particular concern. For example, in systems supporting self-employed residents' tax data, technology infrastructures had not kept pace with developments since they were put in place in the mid-1990s.

'One of the most digitally advanced tax administrations'

The culprit for the unreasonably vast legacy estate, according to the spending watchdog, is previous cost-cutting. "HMRC has recognised that, due to the need in the past to forgo operational maintenance and upgrades to its systems to secure cost savings, its IT systems now constitute a significant risk to the department," the report said.

HMRC told the PAC it would seek funding opportunities, such as Spending Reviews, to modernise its systems.

In 2015, HMRC put plans in place to "become one of the most digitally advanced tax administrations in the world."

A withering line from the report said: "HMRC considers that, although it is not the most digitally advanced tax administration in the world, it has made significant digital advances since 2015."

Speaking to the committee hearing last November, the tax agency's boss, Jim Harra, said he had commissioned a review of the technical debt and plans for tackling it since he became HMRC chief executive in October 2019.

"As a Department, we spend an excessive proportion of our IT spend on live running of the legacy estate and an insufficient proportion on investment for the future and on modernisation. I want to see that change," he said.

And yet that other mega issue smacking the HMRC right in the face, the country-splitting decision to leave the EU, is ensuring the tax authority clings to its legacy systems.

In October, it waved through a £168.8m Fujitsu contract because no other vendor could hold up 30-year-old infrastructure supporting, among other things, the Customs Handling of Import and Export Freight (CHIEF), which was supposed to retire in January 2019, but was needed to handle EU trade after Brexit.

In November, Harra admitted there was no end in sight for the CHIEF system.

In its report, the PAC said HMRC should write to it by the end of March 2021 explaining how it would "refocus IT investment on modernisation for the future."

With that date following shortly after the March budget, in which UK chancellor Rishi Sunak is expected to make those classic "tough choices" for public finances decimated by the COVID-19 pandemic, it would be a fool who bets that HMRC IT modernisation is anywhere near the front of the queue. ®