Income tax computer deal pounds 250m over budget

'It does seem an extraordinary overspend ...'

The Inland Revenue has gone pounds 250m over budget in computer spending to ensure that the biggest tax reform in half a century is introduced on time. It has also admitted wasting pounds 150,000 by paying twice for software because it mislaid user licences.

The Government has pledged to introduce self-assessment for nine million higher-rate taxpayers and the self-employed in an attempt to cut red tape, reduce costs and make the system more accurate. Much of the legislation is in place for the start of self-assessment in 1997.

Kenneth Clarke, the Chancellor of the Exchequer, introduced measures designed to make its introduction easier in the last Budget. More than pounds 25m is currently being spent on a media promotion.

It was reported earlier this year that the project was in jeopardy because of a disagreement between the Revenue and EDS, its American computer supplier. EDS was awarded a 10-year contract to manage the Revenue computer systems last year at a value of pounds 1bn - the largest information technology contract in the public sector.

It has now emerged that the Revenue has increased the value of this contract by pounds 250m - without any re-tender - principally because the American suppliers say the work required to introduce self-assessment is more than planned. The original contract was designed to save the taxpayer pounds 225m over 10 years.

The admission was made in response to parliamentary questions tabled by Chris Mullin, Labour MP for Sunderland South. Sir George Young, then Financial Secretary to the Treasury, said: "The costs attributable to the work ... were greater than those in the [tender]." Asked whether it was possible self-assessment would not be introduced on time, he said: "Self-assessment will be introduced in 1997 as originally planned."

Sir George admitted EDS had been paid twice for software because the Revenue had lost the official paperwork allowing its use. Sir George said: "There was insufficient documentary evidence ... the Department has agreed with a supplier a fee of less than pounds 150,000." This was on top of pounds 150,000 already paid. "To prevent recurrence, improved procedures have been implemented," he said.

It is understood that EDS has insisted that it takes control of the self- assessment project six months earlier than planned to ensure its timely delivery. Among other concessions reportedly made to the company is an agreement to let it bring in senior US consultants at a cost believed to be pounds 1,500 a day.

An EDS spokesman said the Revenue had been forced to increase the size of the contract "after concerns self-assessment would not come in on time".

EDS and the Revenue yesterday insisted the short-term increase would mean a long-term saving on purchase of equipment and computer management.

Mr Mullin said yesterday: "It does seem an extraordinary overspend in only the first year of the contract."