HMRC to reduce IT service spend by £235m

HMRC is to shave its IT spend by £235m as part of a major cost-cutting plan announced today in a National Audit Office (NAO) report entitled Reducing Costs in HMRC.

The £235m forms a significant part of a total of £964m in savings targeted by the department by 2014-15.

HMRC will implement 54 change projects to achieve these savings.

Some £647m will come from savings in the provision of IT services, improvements in productivity, reduced sickness absence and a headcount reduction of 10,000.

HMRC has a "good understanding of IT costs" according to the report, which also said that Corporate Services had good "unit cost information on IT", which has allowed HMRC to be specific about the savings it hopes to achieve in this area.

The department has taken a different approach this year to that taken following the Emergency Budget in 2010 when savings had to be made in a matter of months – the department has now had more than a year to consider how best to make savings until 2014-15.

Reducing spend on staff, IT and accommodation was difficult last year at such short notice, according to the report, as the department actually required funding to secure staff exits or to cancel projects that were covered by long-term contracts. As a result, the department targeted contractors and travel expenses at the time.

Amyas Morse, head of the NAO, said: "Reducing running costs by £1.6bn over four years is a big challenge for HMRC.

"It is making progress, but there is no contingency in its plans. To achieve value for money, it needs to better define the service it is aiming for, improve its understanding of costs and develop its implementation plan."