Her Majesty’s Revenue and Customs (HMRC) is planning a massive overhaul of its physical estate in an attempt to modernise the way it works, support it’s broader transformation, cut down on costs and help the government department recruit skills that will enable it to become primarily a digital service.
However, the National Audit Office (NAO) has highlighted that the UK tax office has already admitted that its previous targets were over-ambitious and has warned that the department may not be building enough flexibility into its future plans for changes to the technology and workplace landscape.
HMRC has said that it plans to significantly reduce its estate over the next 10 years, moving 38,000 employees from its current estate of 170 offices to 13 large regional centres, supplemented by four specialist sites and a HQ in London.
The plan is part of a wider civil service agenda to move to shared government ‘hubs’, which promote collaboration within the public sector. HMRC believes that it has more space than it needs, much of which is in a poor condition, which it argues reduces moral and productivity.
However, part of the problem in reducing its estate today lies with the fact that most of its current estate is tied into a long-running contract with Mapeley STEPS Contractor, which expires in 2021. HMRC’s regional centres will need to be up and running before the STEPS contract expires, leaving the tax department with an ambitious timeframe for relocating staff, managing redundancies and hiring new skills.
It plans to occupy the regional centres before the March 2021 deadline, because if it doesn’t, it will incur additional rental and service costs.
The NAO explains the rationale behind HMRC’s as follows:
• it considers a different estate is necessary to support the wider transformation of its business. It sees regional centres as offering the right infrastructure and working environment to enable new digital ways of working for its customers and staff;
• HMRC’s programme will support the wider civil service agenda to move to shared government hubs, supported by a regional network of mini-hubs; and
• the end of the STEPS contract in 2021 provides an imperative for HMRC to act and an opportunity to reconfigure its estate on a large scale.
The NAO explains that HMRC’s original plans, which were laid out in 2015, to move to the regional centres to support new modern ways of working were “unrealistic” and warns that during this transition it must ensure that its service to taxpayers and the ability to collect tax revenue are not impaired.
One of the challenges includes HMRC’s potential loss of up to 5,000 staff as a result of the move. It will need to recruit to its new centres, train new staff, while managing redundancies and the moves to existing employees and operations into new buildings.
The report states:
It has concluded that its original plans were over-optimistic about the availability of suitable properties and carried too high a risk of disruption to its business, as they involved moving or replacing too many staff too quickly, while delivering other major change programmes in parallel.
HMRC is reconsidering the scope and timing of its moves to some regional centres to reduce costs and delivery risks over the next five years. Since its spending review settlement in November 2015, HMRC’s estimate of its estate costs over the next 10 years has risen by nearly £600 million (22%), more than half of which is due to higher than anticipated running costs for its new buildings.
It has also identified that slippage in the timetable for some regional centres had led to an unmanageable peak of activity scheduled for 2019-20. HMRC is considering the actions necessary to reduce this peak and stay within the funding it has secured between now and 2020-21. It tells us that it will reach this decision shortly.
The NAO report has also identified some potential problems ahead for HMRC. For example, it has raised concerns that HMRC has already shifted the goalposts with regards to its cost saving targets for the project. And whilst it notes that it’s better to realise this sooner rather than later, it needs to consider this project within the scope of broader transformation. The report states:
As far as the new programme is concerned, HMRC has already recognised that its original plan was unrealistic and it is considering how it can adjust the scope and timing of the programme to reduce the cost and delivery risk. It is, of course, better management practice to recognise cost underestimates early and to consider options for recovery early as well.
However, we think it important for HMRC to step back and consider the benefits afforded by the wider business transformation, and whether they might be reduced or placed at risk by cutting back on, or delaying, the estate plans, before going ahead.
HMRC has reduced its estimate of the benefits of the programme and now expects savings to come later than expected. In the long term HMRC still expects the new estate to reduce its running costs by £212 million by 2025-26. It’s original estimate was £499 million.
HMRC is now also considering actions to reduce the costs and the risks of disruption over the next four years. It is looking at a range of options, including: changing the timetable for opening and filling regional centres; reconsidering the functionality, location and size of individual units to determine the best mix of staff to undertake some work; adding a transitional site in East London to ease the disruption in the South East; changing where to focus its recruitment effort; and reassessing how and when to introduce flexible ways of working.
However, the NAO also notes that HMRC has “yet to define fully how regional centres will support better customer service and more efficient and effective compliance activities”. HMRC has faced harsh criticism over its current customer service, with claims that it is so bad that it could be impacting the UK’s tax revenues.
Furthermore, the NAO is also concerned that HMRC is not learning from mistakes with its past STEPS contract (and dare I say it, it’s ASPIRE outsourcing deal too), where it has signed up to a lengthy deal without a view of how to ensure flexibility. The report notes:
So far, HMRC has agreed 25 year contracts for its regional centres in Croydon and Bristol without break clauses, which could tie the department to long term costs should its future operating model differ from its current plans. HMRC believes its property strategy addresses the need for flexibility by a balance of lease terms across the estate, the ability to sublet across government, and by working with the Government Hubs Programme to facilitate wider government flexibility.
HMRC is also considering lease breaks where this is achievable while retaining value for money. In the case of its Bristol regional centre, HMRC believes a 25 year lease shows its long-term commitment to stable jobs in the city and offers the best value for money. HMRC still needs to negotiate its remaining leases, and it must weigh the lower lease costs of making long-term commitments against the benefits of retaining the flexibility to allow for future changes to its business.
This is going to be a juggling act for HMRC. Whilst the regional hubs may be the right move to support modern ways of working, and the broader digital strategy, it is dealing with tight timeframes and a lot of HR complexities. And whilst cost savings my be gained by long-term deals for the new properties, HMRC also needs to consider how it can retain flexibility – the threat of increased automation growing and who knows what the government’s needs will be in 10 years time for physical space?
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