Government in "delicate" talks with EDS over compensation payment

Hm Revenue & Customs expects to be paid outstanding amount from £26.5m fine

HMRC wants payment from EDS

"Delicate" negotiations are underway between HM Revenue and Customs (HMRC) and EDS over delayed £26.5m compensation payment for the tax credits fiasco of 2003, a senior Treasury minister has told the Commons.

Exchequer Secretary Angela Eagle told MPs that the time by which HMRC expects to be paid runs out "in the next couple of months", adding that acting chief executive officer Dave Hartnett had "made it clear he intends to be paid" in evidence to MPs.

It is understood that EDS was to have paid quarterly instalments of 4.5 per cent of income from future government work up to the end of this year, but has not won sufficient Whitehall contracts. In the meantime, EDS has been bought by HP for £7.5bn.

Eagle's comments, made in in a House of Commons debate on a series of Public Accounts Committee reports, followed criticism from Tory MP Richard Bacon that of the compensation due only "a few hundreds of thousands have been paid" including a single payment for £20,000.

EDS agreed to pay £71m - considerably less than the £209m claimed by the Treasury - of which £26.5m was dependent on EDS winning future work from the UK government.

Bacon complained the deal meant there was "a rather strong incentive" to award future contracts to EDS "despite rather than because of its track record" .

Labour MP Austin Mitchell said this was "an insane situation", adding: "If a firm screws up one contract, it gets other contracts to help it pay for the compensation for the contract that it screwed up."