HMRC’s move to regional centres unrealistic and over budget, says NAO

HMRC’s plans to close dozens of local offices and move to a network of regional hubs have been branded ‘unrealistic’ by the National Audit Office (NAO), which warns there is a high a risk of disruption, while changing the strategy could diminish the long term financial and business gains

The NAO report on how HMRC is managing its estate is severely critical of HMRC’s major transformation programme to redesign and significantly reduce its estate by 2020-21. It is moving from a widely dispersed estate of 170 offices to 13 regional centres supplemented by four specialist sites and a headquarters in central London.

The audit watchdog points out that HMRC has concluded that suitable property will not be available in some of its chosen locations within the time frame set out in its 2015 spending review settlement. HMRC now estimates it may lose up to 5,000 staff as a result of the move to regional centres. It will therefore need to recruit to its new centres and train new staff, while managing redundancies and the moves of existing employees and operations into new buildings.

The NAO warns of the risks from moving or replacing too many staff too quickly while delivering 14 other major change programmes in parallel. In addition, it questions the size of any potential savings as a result of the moves, which are also intended to provide a more attractive working environment and improve engagement, morale and productivity. 


Since its spending review settlement in November 2015, HMRC’s estimate of its estate costs over the next 10 years has risen by nearly £600m (22%), more than half of which is due to higher than anticipated running costs for its new buildings. It has also identified that slippage in the timetable for some regional centres had led to an unmanageable peak of activity scheduled for 2019-20.

NAO reports that HMRC has said it is considering the actions necessary to reduce this peak and stay within the funding it has secured between now and 2020-21, and will reach a decision shortly.

HMRC has reduced its estimate of the benefits of the programme and now expects them to come later, although it still expects its new estate to reduce its running costs. It now estimates cumulative efficiency savings by 2025-26 of £212m, under half the £499m estimated in its strategic outline case in November 2015.

By 2025- 26, HMRC expects its annual running costs to be £83m lower than they are now, but NAO says that the changes need to reduce costs and delivery risk could diminish the long-term value of the strategy.

HMRC is now considering actions to reduce the costs and the risks of disruption over the next four years. Options include changing the timetable for opening and filling regional centres; reconsidering the functionality, location and size of individual units to determine the best mix of staff to undertake some work; adding a transitional site in East London to ease the disruption in the south east; changing where to focus its recruitment effort; and reassessing how and when to introduce flexible ways of working.

However, NAO warns that such changes risk compromising its original objectives, although it also points out that HMRC has yet to define fully how regional centres will support better customer service and more efficient and effective compliance activities.


HMRC has signed the contract for its first regional centre in Croydon, but faces a demanding timetable to occupy the site as it plans in 2017. The NAO says HMRC’s move to regional centres will require good coordination across HMRC to ensure that everyone involved in the moves understands what is expected of them. It must therefore clarify what changes in working practices are necessary to support digital services and its future compliance model, and coordinate its design of regional centres to achieve these outcomes.

The report also examines HMRC’s relationship with Mapeley STEPS Contractor Ltd, which has a long-running contract covering around two-thirds of HMRC’s estate, due to end in 2021. NAO says HMRC’s management of the outsourcing deal has improved, achieving cumulative savings of £189m since 2011. It has closed 160 buildings managed under the contract and reduced the contract’s annual cost by £54m, although the report notes underperformance in 2014/15, resulting in a 2% reduction in HMRC’s payments in compensation.

In its business case for moving to regional centres, HMRC estimated that it would continue to make savings over the next eight years as it leaves most of its existing buildings. However, NAO points out that HMRC’s regional centres need to be up and running and its estates plans settled before the STEPS contract ends in March 2021. If it stays in STEPS properties beyond this its rental and service costs will increase.

The NAO says HMRC must manage the risk that it locks itself into long term property deals which limit its flexibility to change its future business model, pointing out it is now implementing its third major change programme since the merger of the Inland Revenue and HM Customs and Excise in 2004. It has not negotiated any break points in the 25 year leases it has signed so far in Croydon and Bristol.

Amongst its recommendations, NAO wants HMRC to improve its control of the costs of the new regional centres and guard against what it calls ‘optimism bias’. HMRC should also plan in detail how the infrastructure it is putting in place through regional centres will support the ways of working its business aspires to. NAO says HMRC has yet to demonstrate how in practice the regional centres will help its employees provide a better service to customers while increasing the efficiency and effectiveness of its compliance work.

Amyas Morse, NAO head, said: ‘HMRC has improved the handling of its current contract with Mapeley and achieved better outcomes, though significant risks remain. Looking ahead, HMRC has acknowledged its original plan for regional centres was unrealistic and is now re-considering the scope and timing of the programme.

‘It should step back and consider whether this strategy still best supports its wider business transformation and will deliver the sustainable cost savings it set out to achieve in the long run.’

Meg Hillier, chair of the public accounts committee, said: ‘As HMRC decides what actions to take in the short window it has before the Mapeley contracts expire, I urge it to heed lessons of the past before signing more long-term lease agreements, or letting experienced people go.’

An HMRC spokesman said: ‘Our 13 new regional centres are an essential part of our work to modernise HMRC and provide an even better service for our customers, while delivering annual savings to the taxpayer of over £80m from 2025-26.

‘It also means modern offices for our staff, with the latest technology, better collaboration between teams, local training and wider career opportunities.’

The NAO report on managing the HMRC estate is here.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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