HM Revenue and Customs perm sec Sir Jim Harra has told MPs that investment costs for his department's Locations Programme have increased by just over £400m over the past eight years but the project's whole-life costs remain "stable" at £2.88bn.
Harra was quizzed about HMRC's long-running office consolidation programme, which is moving operations from around 170 small offices to 14 regional centres, at a recent meeting of parliament's Public Accounts Committee.
In a follow-up letter to the committee he insisted that while investment costs for the programme increased from an anticipated £552m in 2017 to a current figure of £953m, an expansion of the programme – including extending the investment phase from 10 to 15 years – was the reason.
He said that the programme, which has so far seen HMRC staff move into buildings such as Ruskin Square in Croydon, Unity Square in Nottingham and Atlantic Square in Glasgow, would see whole-life costs essentially unchanged at £2.88bn measured over a 25-year period.
Harra, who is due to stand down as perm sec in the coming weeks, told MPs that the investment cost increases were caused by a range of factors, including the expansion of the programme's scope and "unprecedented high levels of inflation over recent years".
A breakdown of investment-cost increases showed that £248m were attributed to the addition of regional centres at East Kilbride, Preston and Portsmouth to the programme – along with inflation-related cost increases. The figure also includes the impact of "strategic decisions" to acquire some hub freeholds when it represents better value for money than previous arrangements.
Other cost drivers included the increased expense of voluntary redundancy packages because of a legal challenge that forced revisions to the Civil Service Compensation Scheme to be set aside. Closing local offices and encouraging staff to move to other workplaces potentially triggers the option of voluntary redundancy for those who would face excessive travel times.
The PCS union won a High Court battle over changes to the compensation scheme that came into effect in 2016, forcing the then government to revert to the scheme's more generous 2010 terms for voluntary exits. It successfully argued that the Cabinet Office had failed to properly consult on the changes. HMRC subsequently paused its exit programmes.
Harra's letter said the impact of having to revert to the more expensive 2010 compensation scheme terms had added £82m to the cost of the Locations Programme.
In addition to the five-year extension to the Locations Programme's investment phase, Harra said HMRC had changed the programme's assessment period from 10 years to 25 years. He told MPs that despite the expansion and additional financial pressures detailed, the whole life costs of the programme were only £49m more than had been planned in 2017.
The perm sec said that the comparatively small change to the project's whole-life costs was "testament to the value for money solutions we have been able to secure".
He added that switching to a "smaller, modern and more environmentally efficient network" of regional centres and workplaces had allowed HMRC to drive down overall running costs and "resulted in increased programme benefits overall".
For the best part of a decade, PAC members have challenged HMRC on the underlying business case for its its regional centres – which represent the first wave of the government's hubs programme. Key concerns have included whether the department has correctly anticipated its long-term space needs, particularly in light of the increased trend towards hybrid working powered by the response to the Covid-19 pandemic.
Harra told MPs that as of September 2024 the occupancy rate for the 12 HMRC regional centres that are open was 67% – as measured by Cabinet Office-defined metrics.
The perm sec acknowledged that his department has spare capacity, but said planned increases to headcount would take up some of the surplus, while additional space would be rented out to other parts of government.
"HMRC’s allocated capacity currently exceeds our needs because we are holding space for the future workforce growth announced by the chancellor in her Autumn Budget," Harra said. "I expect HMRC occupancy levels to rise as we continue our planned workforce growth and sublet more of our allocated capacity."
Harra told MPs that HMRC has sublet 61,000sq m of space at the 12 regional centres to 52 government departments and agencies. He said the space could accommodate around 14,000 staff and was forecast to generate income of £36.6m in 2024-25, rising to an anticipated £39.2m in 2025-26.
Harra said HMRC sublets a further 23,000sq m of space in its wider estate to departments – representing space for an additional 1,300 full-time-equivalent staff.