HMRC chief Joh Thompson, who brought the Concentrix contract back in-house
MPs have said the disastrous outcome of HM Revenue & Customs' outsourced fraud-checking deal for tax credits was “entirely predictable” and that the tax collection agency lacked the essential capacity to make the payment-by-results model work.
Around 45,000 tax credits recipients saw their payments suspended last summer as part of fraud and error checking work undertaken by US-owned firm Concentrix through an outsourced contract with HMRC.
The move prompted Concentrix’s call-handling system to go into meltdown, leaving those entitled to the welfare payments unable to rectify their situation. Payments to two-thirds of the recipients were subsequently restored, but the contract was brought back in-house by HMRC, along with 250 staff.
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Concentrix’s payment-by-results contract, signed in 2014, earmarked £1bn in savings via a payment-by-results model. But the PAC said just £193m of savings had been delivered as of November last year.
MPs said HMRC had also re-negotiated the contract the year after it was originally signed – almost tripling the commission offered to Concentrix in the months before the system crashed – after concerns from the firm that the original model was not viable.
The PAC said the Concentrix debacle had caused “unnecessary hardship and suffering” to thousands of benefits claimants for reasons that should have been “entirely foreseeable”, and that it was likely that some were still out of pocket.
But its most stinging criticism rests at the feet of HMRC for entering into a contract that it lacked the commercial capability to design, and subsequently hiking Concentrix’s commission from 3.9% to 11% despite a poor service record.
Committee chair Meg Hillier said the human consequences of Concentrix failures were well documented, but had still not been entirely rectified.
She called on HMRC to ensure that remaining issues were resolved and for the agency to ensure that its own customer service was improved, but said broader lessons also needed to be learned.
“HMRC was woefully ill-equipped to design this contract,” she said.
“Clearly it placed too little importance on customer service. But it was also driven by an inappropriate payment-by-results model, was renegotiated on terms less favourable to the taxpayer, and ultimately achieved less than a fifth of the savings expected.
“This lack of commercial expertise in a critical decision-making function of government is sadly familiar to our committee.
“HMRC does not plan to involve the private sector in this area of work again but it must demonstrate it has the capability to prevent a similarly dismal performance in any future contracts.”
Mark Serwotka, PCS general secretary, said the contract model for the outsourcing deal had been flawed and that the union supported MPs findings.
“Private profit and payment by results have absolutely no place in our welfare system that should be impartial and run by public servants for the public good,” he said.
Concentrix says it lost £20.5m from the contract, the PAC report said.
HMRC said it was “absolutely committed” to paying tax credits claimants all the money they were entitled to in a timely and efficient manner, and reiterated that it would be conducting all fraud checks in-house in future.
“HMRC terminated the contract with Concentrix when it became clear that it was not delivering the quality of service we expect for our customers,” a spokesman said.
“It is important to make checks on tax credits claims to ensure the right people are receiving the money to which they are entitled under the law, and this work will now be done by HMRC.”
This story was updated at 15:00 on April 6 to include a response from HMRC