HMRC to cut IT costs by £235m in bid to save £1.6bn

HM Revenue & Customs (HMRC) will reduce its spend on IT services by £235m as part of a move to save £1.6bn over the next four years, a National Audit Office (NAO) report has revealed.

The report, Reducing Costs in HM Revenue & Customs, outlined a number of changes at HMRC, including around 10,000 job cuts, although there were no details on whether this includes IT workers.

"HMRC has committed to reducing running costs by 25 per cent in real terms by 2014-15, which amounts to cumulative cash savings of £1.6bn. £235m will come from agreed changes in the provision of IT services," the report said.

"The size and shape of HMRC will change substantially as it reduces staff numbers by 10,000."

NAO comptroller and auditor general Amyas Morse explained that the cuts are just one element of HMRC's targets, but warned those in charge at the department to be aware of what they are trying to achieve with the cutbacks and cost savings.

"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," he said.

"To achieve value for money, HMRC needs to better define the service it is aiming for, improve its understanding of costs, and develop its implementation plan."

HMRC is expected to deliver an additional £7bn of tax revenue by 2014-15 by reinvesting £917m to tackle tax evasion and avoidance.

The use of technology is one of the main ways in which HMRC is working to reduce its costs. V3 revealed in June that the department had saved £11m since April by using analytics technology from Fujitsu to screen tax credit claims.