Just when the government is having to steer the fine line between raising taxes and cutting expenditure it has emerged that its instrument of taxation, Her Majesty's Revenue and Customs, has missed the opportunity to save a possible £1.2bn on property costs.
"HMRC must take a significantly more astute commercial approach if it is to deliver value for money for the taxpayer," said a statement from the National Audit Office (NAO) when launching its report on the investigation into the property outsourcing deal that HMRC struck in 2001.
Under the contract which was dubbed STEPS – Strategic Transfer of the Estate to the Private Sector – HMRC, at the time still the Inland Revenue and HM Customs & Excise, sold 132 freehold properties to the Guernsey-based property investment and outsourcing company Mapeley and leased them back.
In return for fixed monthly payments Mapeley was also to provide facilities management and maintenance services on another 459 properties which HMRC was renting from other landlords.
HMRC seemed to have got a favourable deal. Not only was Mapeley's bid £500 million cheaper than other bids and £300 million cheaper than if HMRC continued to run the estate itself, but it also gave HMRC the opportunity to rationalise the property it occupied and dispose of up to 60% of the estate. Mapeley would even have had to bear the cost of broken lease terms.
However, according to the NAO report, HMRC did not recognise the contract as a major asset or commit "appropriate commercial skills to managing it."
The NAO says that HMRC has therefore not achieved value for money on the contract because it had no long-term plan and has not obtained all the available savings, originally put at £1.2 bn.
The contract has cost £312m more than originally forecast and can only now produce possible savings of £900m, according to the NAO.
NAO's report says "There is now a significant risk that HMRC will not achieve value for money over the rest of the contract unless it strengthens its management of the contract."
In reponse, a statement from HMRC says that the report, "shows that HMRC has improved the management of the contract and built a more effective partnership with Mapeley.
The costs of running the HMRC estate also compare favourably with those incurred by other departments. We recognise that there is much more work to be done to ensure that the contract delivers all it can to our staff and taxpayers. The measures needed to achieve that are being put in place."
Mapeley also has a property outsourcing contract with the Identity and Passport Service. However, a spokesperson for the IPS said that the way its deal is structured is different and avoids the issues flagged by the HMRC report because the IPS occupies its property under licences – not leases -- from Mapeley for three to five years, providing flexibility without long-term obligations.
Government departments are under increasing pressure to rationalise the property that they occupy in innovative ways but STEPS-type deals are now likely to come under closer scrutiny. The NAO report will also perhaps give more urgency to the shareholder executive's task, set out in the government's operational efficiency programme, of establishing a "central property resource" as a means of providing advice to all government departments on best practice on property matters.
