Tax can be taxing

The government has come under sharp fire for failing to gain value for money from large private finance deals, because of a lack of commercial skills, and for signing a contract involving tax avoidance through an offshore company . In one of the final reports from the present parliament, MPs on the Commons' public accounts committee said today that a contract designed to save HM Revenue and Customs up to £1.2bn over 20 years by privatising the property that it occupies has so far failed to achieve value for money and has "not demonstrated adequate commercial skills or business acumen". During the first eight years of the contract, the department failed to monitor the overall costs or value for money of the contract. While it does now have a plan to manage the contract, its plan goes no further than 2011. The MPs say the department must develop a plan up to 2021 to detail how the contract will deliver the objectives of its estates strategy . Furthermore, involvement of an offshore company in the deal has tarnished the good name of the Revenue. "The decision by a tax authority to enter into a commercial arrangement involving tax avoidance through an offshore company has damaged HMRC's reputation and not delivered any extra benefits to the government, as any reduction in the contract price will be accompanied by a reduction in tax revenue," commented Edward Leigh, chairman of the PAC, when the report was published today. The committee has taken HMRC to task because of the underperformance of its property outsourcing contract with Mapeley STEPS, part of Guernsey-based Mapeley, to which HMRC transferred ownership of 60% of its estate in 2001. The deal involved 591 mostly office buildings, of which HMRC owned 132 and rented 459 from a variety of landlords. The freehold property was transferred to Mapeley and leased back, while the company agreed to manage the leases on the other property and provide facilities management and maintenance for all of the buildings. One major benefit to HMRC is that the contract allows it to dispose of 60% of its space – 42% with no penalty – enabling it to downsize according to need rather than to a timetable dictated by the terms of leases. However, HMRC did not fully exploit the opportunity. The committee said HMRC got a good price but has not managed the contract well and the potential savings have diminished by 25%. Leigh said the department went into the contract without a plan for how it would achieve those savings. "Now that it has got around to deciding which buildings it wants to leave, it finds that to do so creates financial pressures for its private sector partner Mapeley." HMRC is also criticised because it did not establish an effective partnership with Mapeley or monitor the company's financial position despite being advised to do so by the committee in 2005. "Mapeley has been to the department once before, seeking more money. HMRC must not now offer any concessions on the contract terms without obtaining commensurate benefits," Leigh said. Leigh added that to get the best out of the contract requires HMRC to work in partnership with Mapeley and have the skills in place to manage the contract. The report says the department did not understand its own risks if Mapeley defaulted on the deal. It recommends that the Treasury should undertake an annual assessment of commercial skills across government and should set up "centres ofexpertise" into which departments could tap.