SR 2004 - Departmental Investment Strategy 2005-06 to 2007-08

 

Contents

Section 1: Introduction and context

Section 2: Investment under spending review 2002

Section 3: Asset management plans

Section 4: Investment plans

Section 5: Delivery and systems

 

Section 1: Introduction and context

HM Revenue and Customs

1.1 This document sets out the plans for capital investment for HM Revenue and Customs. It focuses on the years covered by the 2004 Spending Review - 2005-06 to 2007-08 (SR 2004).

1.2 In the 2004 Budget the Chancellor announced that HM Customs and Excise and the Inland Revenue would be integrated to form a single department, HM Revenue and Customs (HMRC). The new Department required legislation to bring it into existence and HMRC was formally launched on 18 April 2005. The investment plans set out in this document will evolve as the full implications of the integration become clearer.

1.3 This investment strategy shows:

  • how our investment plans contribute to the aim and objectives of the new Department
  • how our existing asset base is utilised and managed
  • the forthcoming investments we have planned
  • how we ensure value for money from our investments.

Overview

1.4 The HMRC Departmental Investment Strategy (DIS) builds on earlier spending plans by Inland Revenue and HM Customs & Excise. Capital investment across the two departments, while not insignificant, accounted for only around 6% (£230m) of their total net expenditure in 2003-04. As a consequence of this, and our significant PFI contracts in respect of estates and IT, the Departments have a comparatively low aggregate capital base of just £801m at 31 March 2004.

1.5 The investments described in this plan will support the Departmental aim, objectives and targets set out in our Public Service Agreement (PSA) for the SR 2004 period, as set out below:

Aim

To administer the tax and customs control systems fairly and efficiently, and make it as easy as possible for individuals and businesses to understand and comply with their obligations and receive their tax credit and other entitlements.

Objectives

Objective I: Improve the extent to which individuals and businesses pay the amount of tax due and receive the credits and payments to which they are entitled.

Targets:

1. By 2007- 2008 reduce the scale of VAT losses to no more than 11% of the theoretical liability.

2. By 2007- 2008

  • reduce the illicit market share for cigarettes to no more than 13%;
  • reduce the illicit market share for spirits by at least a half; and
  • hold the illicit market share for oils in England, Scotland and Wales at no more than 2%.

3. By 2007- 2008 reduce underpayment of direct tax and national insurance contributions due by at least £3.5 billion a year.

4. By 2007- 2008 increase the percentage of individuals who file their Self-Assessment returns on time to at least 93%.

Objective II: Improve customer experience, support business and reduce the compliance burden.

Targets:

5. Respond accurately and completely to requests for advice:

  • by 2007-08 increase to at least 80% the proportion of individuals and businesses who said they achieved success at first point of contact
  • by 2007-08 increase to at least 90% the accuracy and completeness of information and advice given and actions taken in respect of contact.

6. Provide simple processes that enable individuals and businesses to meet their responsibilities and claim their entitlements easily and at minimum cost:

  • by 2007-08 increase to at least 90% the proportion of small businesses that find it easy to complete their tax returns
  • by 2007-08 demonstrate a measurable improvement in new and growing businesses’ ability to deal correctly with their tax affairs. This will include increasing the proportion of applications for VAT registration that are complete and accurate to at least 50%
  • by 2007-08 increase to at least 85% the proportion of individuals who find their Self-Assessment Statements of Account, PAYE Coding Notices and Tax Credit Award Notices easy to understand.

7. Deal effectively and appropriately with information provided, so that levels of contact are kept to a minimum:

  • by 2007-08 increase to at least 95% the rate of accuracy achieved in administering Self-Assessment, Pay As You Earn, Tax Credits and National Insurance Contributions
  • by 2007-08 increase to 35% the percentage of Self-Assessment tax returns received on line
  • by 2007-08 increase to 50% the percentage of VAT returns filed on line.

Objective III: Strengthen frontier protection against threats to the security, social and economic integrity and environment of the United Kingdom in a way that balances the need to maintain the UK as a competitive location in which to do business.

1.6 In line with our spending plans more widely, our investment will be targeted to deliver:

  • improved effectiveness in delivering revenues into the Exchequer and in our other key frontline responsibilities
  • ministers' policy agenda
  • a modernised Department delivering the services our customers require and reducing the costs of compliance
  • increased efficiency, in particular achieving the levels of savings required by the Efficiency Review.

1.7 To this end the joint investment strategy will build on the progress both Departments have made to date.

Section 2: Investment under spending review 2002

2.1 The previous DIS for each of the two Departments set out areas of investment following the 2002 Spending Review (2003-04 to 2005-06). The examples below provide evidence of progress made on these investments since then, showing how they are helping our operational systems respond to increasing taxpayer volumes and changing demands while supporting customer needs and contributing to the achievement of the Departments’ PSA targets. References to performance below relate to the PSA targets agreed following the 2002 Spending Review, and not the new PSA target for the combined Departments set out above.

Modernising PAYE Processes for Customers - MPPC (IR)

2.2 The 2002 Spending Review provided for £77m new investment in infrastructure over three years to support reform of payroll services in order to reduce compliance costs for businesses (SR 2002 IR PSA target 2). This investment contributes directly to the Department's target of ensuring that 100% of services are offered electronically by 2005 (SR 2002 IR PSA target 3). Significant work has already been carried out to develop the infrastructure required. The new, wider PAYE regime to be delivered by MPPC is now due to be implemented in October 2006. This remains a key investment programme for SR2004.

Improving cashflow (IR)

2.3 We announced plans at SR2002 to improve the Receivables Management Service in order to speed the flow of payment to the Exchequer. (SR 2002 IR PSA target 1). This programme is still ongoing and by the end of 2005-06 we plan to have completed investments to the tune of £34m.

Electronic service delivery (IR)

2.4 Additional capital investment in SR2002 built on the work started under SR2000 to invest extensively in making services available online. Total planned capital investment over the SR2002 period totalled £334.5m. This contributes directly to the continuing PSA target of making 100% of services available electronically by 2005.

2.5 The Inland Revenue online tax return service is at the forefront of electronic services in Government and has been developed in close consultation with users. In 2004-05 more than 1.6 million self-assessment tax returns were filed electronically. Currently around 25% of tax credit claims are being filed online (SR 2002 IR PSA target 3). Further delivery of e-services remains a key investment for SR2004.

E-business (HMCE)

2.6 HMCE investment in E-business is also continuing as part of a programme of longer-term investment. At the end of 2003-04 we had 81.4% of services available electronically against the target of 100% by 2005 (SR 2002 HMCE PSA Target 2).

Scanners (HMCE)

2.7 Investment in X-ray scanning machines has continued to support the Department’s strategy for tackling tobacco smuggling by detecting bulk consignments of smuggled tobacco (SR 2002 HMCE PSA target 1). They have been responsible for delivering 51% of maritime cigarette seizures as well as detecting class A and B drugs, firearms and clandestine entrants.

Vessels (HMCE)

2.8 Following a programme of investment of £16.8 m to replace our vessels we were able to reduce the number of operational cutters from 5 to 4 improving operational effectiveness and reducing our operating cost base.

Section 3: Asset management plans

Existing asset base

3.1 Neither of the two Departments have been major asset holders. The net book value of the joint existing asset base was £801m at 31 March 2004 and can be split into three main categories:

  • Information Technology (£525m).
  • Estates (£112m).
  • Other assets (£164m).

The most significant development over the past few years has been the creation of estates and IT PFI contracts.

IT - (IR)

3.2 The net book value of Inland Revenue IT at 31 March 2004 was £482m. This is split between computer hardware (£101m) and software (£381m). The computer software treated as a capital asset consists of very complex bespoke developments to support the operation of the various tax systems the Department administers. The costs incurred are within the ASPIRE and predecessor contracts described in paragraphs 3.5 - 3.6 below.

3.3 Since April 2000, the IR has operated a policy of refreshing desktop IT hardware, on a three-year cycle using a continuing rolling programme of replacement. This policy is currently being reviewed to consider whether this frequency is appropriate to keep pace with evolving technology and equipment obsolescence.

3.4 Maintenance contracts provide for the replacement of desktop IT assets, like for like, if they become irreparable. A significant number of other low value IT assets are held with a longer life, such as printers. These can be up to ten years old but are also subject to maintenance contracts. These IT assets are distributed throughout our UK operations. A private sector contract is used to manage the installation of new IT equipment and removal of obsolete equipment for redeployment or disposal when appropriate.

3.5 The contract for IR’s existing strategic partnership with EDS expired in 2004 and the Department held a competition to ensure that the right partner was found for the new challenges it faced and also to secure value for money (Project ASPIRE). The competition resulted in the selection, in December 2003, of Capgemini UK PLC as the Department’s new IT partner with effect from July 2004. The VOA are also covered by the ASPIRE contract.

3.6 Under the new contract, ownership of computer hardware has transferred to Capgemini, whereas under the former contract with EDS IR retained ownership of hardware. The effect of this change will be to reduce capital expenditure during project development, with the costs of hardware incurred within IT operating costs, and spread over the life of those assets. IT and ASPIRE assets therefore have a forecast net book value of nil at 31 March 2005. The new contract does not affect office based IT, eg desktop machines and printers, which will continue to form part of our asset base.

IT - (HMCE)

3.7 The net book value of Customs and Excise IT at 31 March 2004 was £44m. This is split between computer hardware (£15m), software (£19m) and assets under construction (£10m).

3.8 HMCE’s IT Infrastructure is provided under a PFI contract by Fujitsu that was let in August 1999 for a period of ten years. The contract covers desktops, laptops, servers and telephony – the Department does not own any of these assets. The Department has, however, retained ownership of mainframe services and application software. In 2003 HMCE and Fujitsu concluded a review of the contract so as to refocus it to meet the changing needs of the Department and in particular the ambitious e-Programme.

3.9 Since the announcement of the merger of IR and HMCE work has been going on to develop options for the fully integrated provision of IS services for HMRC.

Estates

3.10 The net book value of estates for both Departments at 31 March 2004 was £112m. This consists of freehold land and buildings (£1m), enhancements to modern leaseholds (£86m), and assets under construction (£25m). By far the bulk of the joint estate is the subject of a major PFI contract. The enhancements to leaseholds relate mainly to property already within the STEPS contract described below.

3.11 The ‘Strategic Transfer of the Estate to the Private Sector’ (STEPS) PFI exercise was undertaken jointly by Inland Revenue and Customs & Excise, and took place on 1 April 2001 transferring the responsibility for the management of the Departments’ land and buildings to the service provider Mapeley. From 2 April 2001 Mapeley took on the ownership of almost all of the properties Inland Revenue and Customs and Excise owned or leased. The key benefits of the property and services outsourcing deal are risk transfer and the ability for the Departments to focus on their core business. The Departments received an up-front payment of £220m and over the 20-year life of the STEPS contract, when compared with the Public Sector Comparator, we expect to save £344m (in net present values). Instead of dealing with numerous service providers, the Departments now deal just with Mapeley for the STEPS estate. Unlike conventional property leases, the contract allows the Departments to vacate up to 60% of its current property over the duration of the contract, without incurring further costs in the year of vacation. This level of flexibility strengthens our ability to adapt and respond to operational need, to the requirements of our customers and to technological advances. It should also facilitate estate changes as a result of the formal merger of the two Departments.

3.12 The Inland Revenue and Customs & Excise are involved in another separate joint PFI contract with Exchequer Partnerships 2 for its Head Office at 100 Parliament Street; this contract provides full facilities management services for a period up to 2037. The move involved approximately 1,500 Head Office staff relocating in late-2004 and was driven by the business benefits of co-locating our policy and other Head Office functions in a single building with HM Treasury.

3.13 As a result of the move to 100 Parliament Street the Department will include these offices on its balance sheet from 1.10.2004.

Other assets

3.14 The remainder of the assets of both Departments consists mainly of vehicles (£15m), vessels (£18m), scientific aids (£39m), furniture / fittings (£78m) and other (£13m), with a total net book value of £163m as at 31 March 2004.

3.15 Vessels include the four Customs cutters and scientific aids include frontier trace technology and scanners. The Scientific Aids used by the Department in carrying out operational functions incorporate a wide range of equipment with varying lifecycles.

3.16 Furniture is treated as a grouped asset with all purchases being treated as capital irrespective of value. Furniture assets are distributed across UK operations. The replacement cycle sees furniture being replaced approximately every ten years on average. However some items will inevitably be older. Whilst critical to meeting departmental objectives the items are of little market value. Replacement tends to occur when reorganisations and relocations provide an opportunity to replace furniture, which is frequently more cost effective than removal costs and the consequential disruption to operations. Other replacements occur in order to comply with Disability Discrimination Act with the purchase of specially adapted office equipment.

3.17 The Inland Revenue treated leased vehicles as operating leases and they do not form part of our asset base. They are managed by the Departmental Travel and Transport Unit (DTTU) in Nottingham.

3.18 Customs & Excise had a National Unit responsible for setting the deployment strategy for both vehicles and radios. They also monitor the usage of these assets and manage the disposal policy. In this way the Department is able to ensure that best value for money is achieved and investment cycle for these assets is carefully planned and directly follows strategic need.

3.19 Table 1 below sets out the net book value by asset category of the existing HMRC asset base.

Table 1: Net Book Value by asset category

Category


NBV (£m) @ 31.3.04


 

HMRC


Computer software and hardware(1)


525.2


Estates(1)(2)


112.3


Furniture and fittings


78.2


Scientific aids(3)(4)


39.1


Vessels(3)


18.1


Vehicles


14.8


Other equipment


13.4


Notes:

(1) NBV includes the value of assets under construction.

(2) HMCE have adopted a policy of capitalising major enhancements to modern leasehold properties, whereas the IR have treated these as current expenditure. HMRC will adopt a policy of capitalisation.

(3) Vessels and scientific aids are classified as ‘programme’ capital.

(4) Scientific Aids include X-ray scanners being deployed in support of the strategy to combat tobacco smuggling.

Asset disposal

3.20 The letting of the estates and IT PFI contracts has effectively disposed of a very large proportion of both Departments’ assets. The remaining assets are largely bespoke in nature, of little or no value to anyone outside the Departments, and used through to the end of their serviceable life, leaving no realisable value. The exception to this is some scientific aids and vehicles, which are primarily disposed of via auction. We therefore estimate that the receipts from planned disposals are likely to be very small in each of the three SR2004 years.

3.21 The creation of the Serious Organised Crime Agency (SOCA) during the SR04 period will result in the transfer of some business currently undertaken by the former HMCE. Some capital funding and existing assets will transfer to SOCA, probably in 2005-06, but this is still the subject of negotiation.

Section 4: Investment plans

Integration

4.1 The investment plans outlined below reflect the 2004 Spending Review submissions of Customs and Excise and the Inland Revenue. Broad estimates of the costs of integration were factored into these submissions but, because the detailed planning for integration is still ongoing, it is not yet possible to provide information on the level of capital investment that will be required as a result of integration.

4.2 The largest element of capital expenditure arising out of integration is likely to be in creating shared systems - for instance, in creating shared IT functions for both our staff and customers to ensure that we provide a consistent and joined-up interface for customers to deal with us.

4.3 HMRC has set up a Change Management Centre to ensure that the costs and benefits of investment proposals arising out of integration are evaluated in a robust way and compared against proposals already outlined in Spending Review 2004.

Investment under SR 2004

4.4 Table 2 below sets out the total capital investment funding received by HMRC under SR 2004.

Table 2: HMRC planned total investment over the SR2004 period

£m


2005-06


2006-07


2007-08


Capital


271


376


471


Departmental Unallocated Provision


3


4


4


Total Capital Departmental Expenditure Limit (DEL) (1)


274


380


475


(1) Includes VOA capital of £9m in each year.

4.5 The Department’s planned capital investment covers both replacement programmes for refreshing existing assets where necessary and areas of new investment and modernisation and supports all business areas over the SR 2004 period. Table 3 below sets out how the Department’s capital investment is being deployed across the various functions, also showing some of the most significant areas of new investment that HMRC is committed to for the SR2004 period. The focus of these is, for the most part, continued new investment in our E-business programme to bring services on line by 2005 and improve the efficiency as part of our long-term strategy. There will also be investment to support the new Lorry Road User Charge (LRUC), though this is currently in the early stages of planning.

Table 3: HMRC planned capital investment by function (including major new investments)

£m


2005-06


2006-07


2007-08


Compliance


28


43


50


Including: Yield Management


3.0


14.0


11.0


Service


152


141


79


Including: MPPC


30.0


20.0


10.0


 

SA and CTSA modernisation


11.0


3.0


15.0


Policy


27


132


282


Including: Operational modernisation


3.0


6.0


22.0


 

Pensions and NI Data Modernisation


-


-


25.0


 

Other Policy (including CTF and CIS)


23.0


25.0


36.0


Detection/Investigation


55


51


51


Other significant investment areas covering more than one function:


     

E-programme


52.1


31.1


30.1


Improvements to Accounting Processes


5.7


5.0


5.0


4.6 The following paragraphs provide additional information on most of the planned major new investments that appear in Table 3 above.

Yield management

4.7 Yield management comprises two elements: implementing our compliance strategy and reducing the level of outstanding tax debts. There are a number of key areas in which we need to invest including:

  • improved software, modelling and analytical tools to allow better targeted compliance assurance activity
  • more research into customer behaviour to allow us to target our services better and improve customer perception
  • better information about customer debts so that we can match our services to customers' needs
  • further re-engineering of debt management processes, including integrating HMCE and IR debt management activity.

MPPC

4.8 Modernising PAYE Processes for Customers (MPPC) is about making the PAYE system easier, faster and cheaper for employers and the Revenue by encouraging employers to file PAYE returns and make payments on line. Investment in MPPC also includes:

  • taking forward work on the Employer Programme to improve employers' experience of PAYE
  • carrying out essential maintenance and enhancement of COP (Computerisation of the PAYE system) and related systems, like BROCS (Business Review Of Collection Service)
  • replacing COP with a new system that will allow people to work on any PAYE records in any part of the country
  • re-engineering the Department's systems to make them more user friendly for employers
  • introducing PAYE Contact Centres
  • integrating tax and National Insurance exception handling to provide better customer service and efficiency.

4.9 As with the wider E services programme, significant internal efficiencies are expected from this investment.

SA and CTSA modernisation

4.10 A major review of Self Assessment processes and procedures has been undertaken by IR and during 2003/04 pilots were set up to test ideas that emerged from the review. These involved:

  • a short return for SA taxpayers with straightforward affairs
  • refinement of the SA population by reducing the number of taxpayers required to complete a return.

4.11 The principal objective of this work is to make things simpler for the taxpayer and reduce the costs of customer compliance. The outcomes of the review are now being implemented with most of the costs involved being in relation to IT.

Operational modernisation

4.12 The main component in of the Operational Modernisation programme falls in 2007-08 and covers the Whole Customer View, ie improving the provision of information and guidance to staff in contact centres in order to improve levels of customer service.

Pensions and NI data modernisation

4.13 This involves investment in pensions and National Insurance electronic data capture, including extending HMRC portal services to improve the experience of customers dealing with the Department.

Other policy

4.14 This investment comprises the implementation of Ministers' policy agenda, including the Child Trust Fund and reform of the Construction Industry Scheme.

  • Child Trust Fund
    The Child Trust Fund (CTF) is a savings and investment account for children. The Government will make payments to children through this account to help build up a useful stock of assets for when they reach the age of 18. The CTF accounts will help to strengthen the savings habit of future generations, spread the benefits of assets ownership to all, educate people in the need for savings and give young people a basic understanding of financial products.

    CTF accounts became available from April 2005 for eligible children born on or after 1 September 2002
  • Construction Industry Scheme
    The current Construction Industry Scheme has been in place since 1999 but has suffered some problems mainly to do with the cumbersome processes and the costs to businesses of complying with the rules and requirements. The Government has listened to these concerns and asked the Inland Revenue to develop proposals to modernise the scheme. A consultation document was prepared and in February 2003 and in the 2004 Budget, the Government announced that CIS will be reformed in April 2005 along the lines of the proposals in the consultation paper.

    The new system will be introduced by a phased release of functionality rather than a "big bang" approach comprising four major releases namely:
    + Release 1 April 2005 with systems to support internal trials
    + Release 2 October 2005 enhancements to the system
    + Release 3 April 2006 Live release
    + Release 4 April 2007 enhancements to the system and full role out

E-Programme

4.15 The Government is committed to making the delivery of all its services available electronically by 2005. It is also committed to ensuring that the services it delivers should be responsive to users' needs, easy-to-use, flexible and efficient. The purpose of departments' e-business strategies is to:

  • translate these high level objectives into clear and specific targets
  • set out the means by which the targets will be delivered and by which progress towards them can be assessed
  • demonstrate the integration of e-business activity with wider strategic planning activity, in particular PSAs and SDAs
  • provide a basis for continuing iteration to reflect changes in the wider environment.

4.16 E-services to provide customers with on-line forms for filing and portal services for self-service are intended to be increasingly seen by our customers as the natural medium for conducting business with the Department. Significant benefits are expected from reduced customer contact, reduced manual processing and improved internal efficiency.

4.17 Our E-business programme will continue its work towards the development of new capabilities and the simplification of our processes and technology used in the fulfilment of our PSA commitments.

4.18 The programme includes the development of both internal and external web-based delivery channels, enabling the use of third party software for the submission returns from the trading community (eg VAT returns, import and export warehouse data), development of electronic payment and accounting services and making internal HR processes available on a self-service basis.

Improvements to accounting processes

4.19 The creation of HM Revenue and Customs requires IR and HMCE to produce a merged set of resource accounts from the start of the financial year HM Revenue and Customs is brought in to being, namely 2005-06. This requires an overhaul of the Departments’ financial accounting systems to produce an accruals based set of accounts for the new Department in accordance with the Government Resource and Accounting Act 2000.

Lorry Road User Charge (LRUC)

4.20 In Budget 2004, the Chancellor announced that responsibility for LRUC will be assigned to Customs and Excise to act as the Management Authority. Introduction of the charge will require investment during the SR2004 period. Procurement began in May 2004 with the issue of a Prior Information Notice. Evaluation of the responses received to tendering exercises, including a value for money assessment, will determine the exact scale and shape the investment required. At this stage of the process greater detail cannot be provided in view of the commercial sensitivity.

Other investment

4.21 Beyond the areas of new investment set out above the Department’s capital spending will focus upon the continuing maintenance of the existing asset base through the planned replacement programmes and the planned implementation of existing strategies. For example the National Fleet Management Unit will be implementing the standing replacement programme according to the specific mileage/life span criteria of vehicles, investment in estates will be in line with planned refurbishment programmes, IT capital spend will be primarily on our development of software and we will undertake the planned replacement of our surveillance radio systems as part of our National Communications Strategy.

Resource budgeting consequences

4.22 All government departments now operate on a resource budgeting basis. This means that the true cost of resources we consume is distinguished from capital investment and matched to the time of service delivery so that we account for costs when they are incurred (accruals accounting). The Department’s funding is therefore split into a ‘Resource Budget’ and a ‘Capital Budget’.

4.23 The Resource Budget covers the costs we need to incur in order to carry out our business, eg salaries, charges to PFI service providers, stationery etc. It also includes the non-cash costs of depreciation and Cost of Capital. Depreciation is provided for all fixed assets with a finite useful life by allocating the cost as fairly as possible to the periods expected to benefit from their use. The Cost of Capital reflects the interest cost to the Government of the Department’s fixed asset holdings (and not the working capital position). The capital budget consists of all new capital spending.

Benefits of resource budgeting

4.24 Resource budgeting better enables us to measure the full economic cost of our activities by showing the cost of consuming resources as their use actually takes place. With the cost and consumption of capital being spread over the useful life of the asset purchased in the form of the capital and depreciation charges and the resulting impact on the resource budget, we have a strong incentive to manage our existing asset base and plan our new capital investments as efficiently as possible. Table 4 shows the forecast resource budgeting impact, including the planned investment in our asset base over the SR 2004 period:

Table 4: Resource budgeting consequences of planned asset base (capital charges)

Capital charges (£m)


2005-06


2006-07


2007-08


Cost of capital charge


35.0


22.1


51.7


Depreciation


164.1


209.5


228.68


Total capital charges


199.1


231.6


280.3


Note: Includes VOA

Section 5: Delivery and systems

Context

5.1 The creation of HMRC presents an opportunity to review and align the existing investment processes, policies and systems of IR and HMCE, looking to take the best features of both aspects forward into the new Department.

Capital planning, allocation and management

5.2 As an integral part of their overall business plans, Directors produce capital plans setting out their investment proposals. These are formulated to support Departmental strategy, underpin the achievement of PSA and efficiency targets and deliver Ministers’ policy agenda. Business plans and the associated resource implications are considered and agreed at Board level, as a result of which funding allocations are made, initially at Director level. The allocations cover a three year period, thus looking to provide Directors with the same planning certainty provided to the Department as a whole in its Spending Review settlement. Funding will be cascaded by Directors to those budget holders, including Senior Responsible Officers (SRO), who are responsible for managing investment programmes and projects. At a corporate level, progress is subsequently monitored primarily by means of the monthly management accounts. These provide traffic light assessments and commentary on the Department’s mission critical programmes and projects, alongside updates on spending against allocations and on performance against PSA and other key targets.

Investment appraisal

5.3 Currently both IR and HMCE operate Investment Appraisal systems that are fully consistent with HM Treasury’s “The Green Book “. The Investment Appraisal system for HMRC will be based on the best investment appraisal processes and practice from both IR and HMCE. All proposed investments over a minimum value (currently £300,000) will require a full business case. That business case must show that all options have been examined, full costs and benefits have been explored, and must demonstrate that the investment provides value for money. A key first stage for any business case will be that it must clearly demonstrate how the proposed investment supports the Department’s stated objectives before it can proceed.

5.4 A new approvals process is being designed to help ensure, among other things, that business cases demonstrate a sound basis for investment by meeting certain minimum standards (based on The Green Book and OGC guidance), and that the funding required for the investment is available.

Programme and project management

5.5 The new approvals process for HMRC will, at least in the early days of the new Department, be overseen by a Change Management Centre (CMC). The CMC’s objectives are to strengthen governance of HMRC Change as a whole to ensure it remains coherent, cohesive and within the Department’s capacity (including that of IT providers) to deliver it successfully, and to ensure that the components of the overall Change Portfolio are designed and developed in the most cost-effective way. For example, to optimise HMRC’s delivery capability the CMC will ensure that programmes and projects are being used to develop an enabling infrastructure of strategic assets and then making maximum use (re-use) of those assets.

5.6 HMRC will use the Office of Government Commerce (OGC) Gateway Review Process to help provide project assurance. At each stage of the Gateway process a review is held and a report produced. The report highlights problems/areas of weakness which need to be resolved before the investment can proceed. Every project/programme must have a nominated Senior Responsible Owner (SRO) who is responsible for the programme/project achieving its objectives. There will also be a programme/project board consisting of the SRO, programme/project manager and key stakeholders who will meet regularly to ensure progress and authorise corrective action where this is required in order to bring the programme/project back on track.

The Efficiency Review

5.7 In August 2003, Sir Peter Gershon began work on The Efficiency Review, a comprehensive review of efficiency in the public sector and published his findings in July 2004. The remit of the review was to find new ways of providing departments and other parts of the public sector with incentives to exploit opportunities for efficiency savings (including procurement and estates), and so release resources for the front line of public service delivery.

Procurement (goods and services)

5.8 The Inland Revenue is currently top of the Office of Government Commerce value for money league table, with Departmental savings of £133m delivered in the 3 years to April 2003 (£47m in 00/01; £25m in 01/02; £62m in 02/03). Savings of £132m have been declared for 03/04. However, we expect to be able to deliver further commodity savings by greater centralisation of spending control and use of bulk buying. We will look to engage in more collaborative working, joint deals and standardisation of products and services across government. We will also continue to open up HMRC contracts to OGDs and agencies to achieve economies of scale and maximise government buying power.

5.9 In terms of the procurement of IT services, the ASPIRE contract contains provisions for IT software development and other services to be delivered. To encourage innovation and ensure that technological advance is fully exploited to facilitate business change, the contract contains the concept of an “Ecosystem” that keeps third party IT suppliers at the table. Companies that apply for membership of the Ecosystem may be invited to contribute to the development of solutions and participate in the provision of IT-related services. This approach is intended to encourage third party suppliers to develop solutions, allowing HMRC to exploit new technology and initiatives, and provides a level of flexibility that strengthens our ability to adapt to changing operational needs.

Procurement (accommodation)

5.10 As described in Section 3 above, the Department's accommodation costs are mainly covered by STEPS, a long-term contract under which supply of its serviced accommodation has been largely outsourced. This in itself will make very large savings compared to the public service comparator. We expect to achieve further savings by rationalising and reducing the estate and other measures including strengthening budget management procedures.

5.11 A National Audit Office report published in May 2004, which examined the value for money of the STEPS outsourcing deal, judged that it had delivered benefits, including rationalised estate management, greater flexibility and improved facilities management. The NAO also judged that the Departments created a competitive environment for the deal and secured a highly competitive price.

5.12 A review of space standards across the Department began in September 2004. The aim is to identify the optimum utilisation of space and consider the options for rationalising space usage, in accordance with the revised space standards we are developing. We will aim to give up or offer to OGD's identified surplus space, within the relevant terms of the contract for vacation.can be maximised providing the opportunity for further rationalisation of premises occupancy.

5.13 Following the Gershon Efficiency Review estates savings of £30m and procurement savings of £35m have been identified. These savings form part of the joint Department’s SR 2004 Efficiency Programme.

Wider markets

5.14 The Department has an active Wider Markets programme in place. Initiatives are being developed year on year that will generate income and sponsorship opportunities.

Valuation Office Agency

5.15 The Valuation Office Agency (VOA) has it own Vote for administration expenditure including capital. Its investment strategy supports the delivery of valuation services.

  • for rates, council tax and other taxes which maintain fairness and reduce burdens and costs to ratepayers
  • in support of more effective and efficient use of property where the public interest is involved.

5.16 The priorities within the strategy are to deliver systems for:

  • handling rating and council tax processes electronically, to provide quicker and more accessible customer services for businesses and individuals; better interfaces with billing authorities; and lower overall costs for both public and private sectors
  • faster, better quality valuations
  • supporting a public sector wide property database through the National Land Information System (NLIS) , and the National Land and Property Gazetteer , and generally providing more accessible information for the public and other users in partnership with HM Land Registry and other public bodies dealing with property.

5.17 The Agency's annual forward plan sets out its modernisation programme and its investment plans are entirely geared towards delivery of that programme. Proposed investments are targeted and prioritised by the Agency's Management Board. Projects over £10m require approval by the parent department.

5.18 The Agency operates on a full cost recovery basis, charging its various clients for the services it provides, so its investment plans and priorities need to be explicitly agreed with those clients. In this context, an Agency Advisory Board - including the Agency's major clients as key stakeholders – exists to develop the Agency's strategies and to promote closer liaison between clients and the Agency on funding.

5.19 The Agency is working towards modernisation of the rating system with greater emphasis on improving ratepayers’ understanding of initial valuations, aimed at reducing the number of appeals, which will be the main element in its broader contribution to renewal and innovation in public service delivery. New rating lists will be published in 2005 and new council tax banding lists in 2007 (2005 in Wales).

5.20 The main area of new investment for the VOA will facilitate the 2007 Council Tax Revaluation exercise in England using computer modelling technology. Table 5 below sets out the VOA’s total planned capital investment over the SR2004 period, the new investment in the Council Tax Revaluation exercise and the resource budgeting impact of the planned asset base, including the SR 2004 investment.

Table 5: VOA planned total investment over the SR2004 period and capital charges

£m


2005-06


2006-07


2007-08


Total Capital Departmental Expenditure Limit (DEL)


9


9


9


Of which Council Tax Revaluation


3.0


1.4


 

Cost of capital charge (1)


0.7


0.3


0.8


Depreciation


7.4


6.4


6.3


Total capital charges


8.1


6.7


7.1


(1) The VOA cost of capital reflects the interest cost on the average net assets less cash and CFER debtor/creditor.

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$START-DATA$ title=SR 2004 - Departmental Investment Strategy 2005-06 to 2007-08^ summary=This document sets out the plans for capital investment for HM Revenue and Customs. It focuses on the years covered by the 2004 Spending Review - 2005-06 to 2007-08 (SR 2004).^ doctype=Report^ date=16-Jun-2005^ author=lk125388^ $END-DATA$
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