Report

by the Comptroller
and Auditor General

HM Revenue & Customs

Managing the HMRC estate

HC 726  SESSION 2016-17  10 JANUARY 2017

Our vision is to help the nation spend wisely.
Our public audit perspective helps Parliament hold
government to account and improve public services.

The National Audit Office scrutinises public spending for Parliament and is independent
of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB,
is an Officer of the House of Commons and leads the NAO, which employs some
785 people. The C&AG certifies the accounts of all government departments and
many other public sector bodies. He has statutory authority to examine and report
to Parliament on whether departments and the bodies they fund have used their
resources efficiently, effectively, and with economy. Our studies evaluate the value for
money of public spending, nationally and locally. Our recommendations and reports
on good practice help government improve public services, and our work led to
audited savings of £1.21 billion in 2015.
HM Revenue & Customs

Managing the HMRC estate

Report by the Comptroller and Auditor General

Ordered by the House of Commons
to be printed on 9 January 2017
This report has been prepared under Section 6 of the
National Audit Act 1983 for presentation to the House of
Commons in accordance with Section 9 of the Act
Sir Amyas Morse KCB
Comptroller and Auditor General
National Audit Office
6 January 2017

HC 726 | £10.00
This report examines whether HM Revenue & Customs
is well placed to deliver its new estates model, which
meets its changing operational needs.

© National Audit Office 2017

The material featured in this document is subject to
National Audit Office (NAO) copyright. The material
may be copied or reproduced for non-commercial
purposes only, namely reproduction for research,
private study or for limited internal circulation within
an organisation for the purpose of review.
Copying for non-commercial purposes is subject
to the material being accompanied by a sufficient
acknowledgement, reproduced accurately, and not
being used in a misleading context. To reproduce
NAO copyright material for any other use, you must
contact copyright@[Link]. Please tell us who
you are, the organisation you represent (if any) and
how and why you wish to use our material. Please
include your full contact details: name, address,
telephone number and email.
Please note that the material featured in this
document may not be reproduced for commercial
gain without the NAO’s express and direct
permission and that the NAO reserves its right to
pursue copyright infringement proceedings against
individuals or companies who reproduce material for
commercial gain without our permission.
Links to external websites were valid at the time of
publication of this report. The National Audit Office
is not responsible for the future validity of the links.
11334 01/17 NAO
Contents
Key facts  4
Summary  5
Part One
HMRC’s rationale for its estate strategy  13
Part Two
HMRC’s management of the
STEPS contract 23
Part Three
Early indicators of the risks and challenges
HMRC faces in implementing its strategy  30
Appendix One
Our audit approach  40
Appendix Two
Our evidence base  42
Appendix Three
The National Audit Office study team
HMRC’s response to recommendations
consisted of:
by the Committee of Public Accounts Craig Adams, John Bell, Paul Bilton,
(PAC), 2009 46 Caroline Harper, Floria Hau,
Sangida Khan and Tamsin Wallwork,
under the direction of Rob Prideaux.
This report can be found on the
National Audit Office website at
[Link]
For further information about the
National Audit Office please contact:
National Audit Office
Press Office
157–197 Buckingham Palace Road
Victoria
London
SW1W 9SP
Tel: 020 7798 7400
Enquiries: [Link]/contact-us
Website: [Link]
Twitter: @NAOorguk
4  Key facts  Managing the HMRC estate

Key facts

£269m 30% £83m

total running cost of the reduction in HMRC’s expected reduction
HMRC estate in 2015-16 annual estate running (31%) in annual running
costs since 2010-11 cost of HMRC’s estate
by 2025, compared
with its current estate

£3.2bn HMRC’s latest estimate of its estate costs over the next 10 years

£588m HMRC’s forecast investment in its new estate

137 HMRC’s offices planned to close by 2021

38,000 employees will need to move offices to regional centres, or

leave HMRC

27% reduction in the size of HMRC’s estate since 2010-11

£354m total savings achieved on its estate between 2010-11 and 2015-16

15 m2 average space per person in HMRC’s estate in March 2015 as

outlined in HMRC’s strategic outline case for its new estate strategy

8 m2 target for average office space per person in the government estate
by March 2018
 Managing the HMRC estate  Summary 5

Summary

1 HM Revenue & Customs (HMRC) has a strategy to redesign and significantly

reduce its estate over the next 10 years. It plans to move from a current estate of
170 offices to 13 large regional centres, supplemented by four specialist sites and
a headquarters in central London.

2 As of November 2016, HMRC had nearly 1 million square metres of buildings.

It spends around £269 million each year running its estate to accommodate its
58,600 staff. It sublets 15% of its estate to other government departments.

3 HMRC has been reducing the size of its estate for six years. Across its whole estate,
it has moved out of almost 300 buildings and cut its estate by 27%, reducing its annual
running costs by £102 million and saving a total of £354 million since 2010-11.

4 HMRC has achieved more than half of this reduction by moving out of excess space
under the terms of its STEPS (Strategic Transfer of Estate to the Private Sector) contract.
STEPS is a 20-year private finance initiative (PFI) deal set up in 2001 with Mapeley
STEPS Contractor Ltd (Mapeley). Under the deal, HMRC sold its freehold properties,
which comprised two-thirds of its estate, to Mapeley for £370 million. HMRC immediately
leased back the properties from Mapeley, with Mapeley providing facilities management
and maintenance services. As HMRC has reduced its workforce over this period, it
has moved out of some of these buildings each year. The remaining third of HMRC’s
current estate is managed under smaller PFI deals and individual leases with landlords.

5 We reported on HMRC’s management of the STEPS contract in 2004 and 2009.1

In our 2004 report, we identified significant risks with STEPS that HMRC needed to
manage carefully. In 2009, we found that HMRC had not been managing those risks
effectively, and it had not realised the benefits available from the contract. In particular,
HMRC had not made all the savings possible by moving out of as many buildings as the
contract allowed. We recommended that HMRC should have full access to Mapeley’s
financial data to give it a better understanding of Mapeley’s profitability and that it
should negotiate more effectively to achieve better outcomes through the contract.

1 Comptroller and Auditor General, HM Revenue & Customs’ estate private finance deal eight years on, Session 2009‑10,
HC 30, National Audit Office, December 2009; and Comptroller and Auditor General, PFI: the STEPS deal,
Session 2003-04, HC 530, National Audit Office, May 2004.
6  Summary  Managing the HMRC estate

6 HMRC’s strategic business case identifies three main reasons why it is seeking
to move from a widely dispersed estate to regional centres:

• it considers a different estate is necessary to support the wider transformation of

its business. It sees regional centres as offering the right infrastructure and working
environment to enable new digital ways of working for its customers and staff;

• HMRC’s programme will support the wider civil service agenda to move to shared
government hubs, supported by a regional network of mini-hubs; and

• the end of the STEPS contract in 2021 provides an imperative for HMRC to act
and an opportunity to reconfigure its estate on a large scale.

7 HMRC’s programme to rationalise its estate is one of 15 major programmes it is

implementing concurrently to transform how it operates and administers tax. It aims
to become “one of the most digitally advanced tax administrations in the world”.
HMRC’s transformation is large and complex, and many of the programmes within
it are interdependent. Figure 1 shows the strategic aims of HMRC’s transformation
programme and how the plans for its estate support its wider objectives.

8 This report takes an early look at HMRC’s plans for its new estate and the actions
it is taking to implement them. First, we consider the strength of the strategic case for
HMRC to move to regional centres. We then evaluate how well HMRC has managed the
STEPS contract since our last report in 2009 and how effectively it is preparing for the
end of the contract in 2021. Finally, we look at early indicators of the challenges HMRC
faces in implementing its strategy and identify some of the risks it has to manage over
the next five years.

Key findings

On the strategic case for the move to regional centres

9 HMRC has concluded that moving to regional centres will provide the
flexibility necessary to modernise and transform the way it works. HMRC has
more space than it needs and much of it is in poor condition, which HMRC considers
reduces morale and productivity. It has assessed that large regional centres will help it
work more efficiently and flexibly with fewer staff, supporting collaboration, knowledge
sharing and economies of scale. They should also give its employees more career
options and help it to recruit high-quality graduates with the skills HMRC will need to
change the tax system to a primarily digital service. HMRC’s plans for regional centres
are therefore integral to its strategic aims to increase tax revenue by bearing down on
tax evasion and avoidance and to transform the service it provides to its customers
(paragraphs 1.5 to 1.9, 1.14, and Figures 2 and 3).
 Managing the HMRC estate  Summary 7

Figure 1
HMRC’s strategic aims and transformation

Maximising revenues due and bear down on

avoidance and evasion:

• Increase total revenues

• Invest in additional work to tackle evasion and

non-compliance in the tax system

• Transform approach to compliance, using the

‘promote, prevent, respond’ strategy

• Use data more efficiently

• Stop non-compliance before it starts

Design and deliver a professional, efficient and Transform tax and payment for our customers:
engaged organisation:
• Finish the delivery of multi-channel digital services
• Develop professional and motivated people with to become a ‘digital-by-default’ organisation
digital skills
• Deliver digital tax accounts
• Ensure people have the right tools to do their job
and deliver outcomes • Ensure that taxpayers can see their complete
financial picture in their digital account
• Deliver cutting-edge corporate services
• Provide a range of third-party software products
• Modernise IT so that it supports the delivery that link securely to HMRC systems
of transformation
• Put in place support for digitally-excluded
customers
• Provide modern offices that are fit for
our people now and in the future, based • Increase tax revenue by making it easier to pay
across the UK the correct tax and reducing error

Source: National Audit Office analysis of HM Revenue & Customs’ single departmental plan 2015–2020

10 HMRC has assessed that the move to regional centres will mean
substantially lower running costs in the long term. While HMRC has reduced the
size and cost of its estate over the last six years, the scale of the changes it could make
has been limited by the terms of its long-running STEPS contract with Mapeley, which
expires in 2021. In its November 2015 strategic outline 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. Beyond 2024-25, it estimated it would
achieve a sustainable reduction of between £80 and £100 million in the annual cost of
holding and maintaining its estate (paragraphs 1.15 to 1.18, 2.11 to 2.13 and Figure 4).
8  Summary  Managing the HMRC estate

11 HMRC has designed its strategy to support government’s objectives

to create government hubs that will be shared by government departments.
The government intends to modernise and rationalise the estate occupied by central
government departments by moving civil servants to shared government hubs, allowing
departments to collaborate more effectively and achieve economies of scale. The timing
of HMRC’s plans, created by its imperative to take decisive action before the end of the
STEPS contract, place it in the vanguard of government’s proposed move to shared
hubs. It is working with the Government Property Unit (GPU) to ensure its new centres
align with the locations chosen for cross-government hubs and meet the expected
design standards (paragraphs 1.11 and 1.12).

On the management and the end of the STEPS contract

12 HMRC’s ability to achieve the outcomes it wants from its estate has been
impaired by the STEPS contract. Our 2009 report on the STEPS deal identified
features of the contract which reduced its value for money, including the actions
necessary for HMRC to understand the risks it would face should the contract end
prematurely. HMRC has assessed that Mapeley’s performance under the contract has
fluctuated since then: while it had recovered from a low point in 2013-14, Mapeley’s
performance in 2014-15 remained below the quality standards HMRC had set. HMRC’s
payments to Mapeley for facilities management were reduced by just under £700,000 to
compensate for Mapeley’s underperformance in that year. This equates to around 2% of
what HMRC pays to Mapeley annually for this part of the contract (paragraphs 2.3, 2.4,
2.7 to 2.10 and Figure 5).

13 HMRC’s regional centres need to be up and running and its estate plans
settled before the end of the STEPS contract in March 2021. HMRC’s business
case identified that if it stayed in STEPS properties beyond 2021, its rental and service
costs would increase. Its aim is to occupy regional centres before this happens, and it
has sought to make decisions about its choice of locations early in order to negotiate
with Mapeley about the time frame for leaving existing buildings. Its aim to occupy
regional centres quickly has meant in some locations having to balance the need to
achieve timely occupancy against cost and quality (paragraphs 1.15, 2.14 and 2.17).

14 HMRC has significantly improved its management of the STEPS contract,

achieving cumulative savings of £354 million since 2011. It has responded to
the recommendations of the NAO and the Committee of Public Accounts by using
almost all of the allowances within the contract to move out of buildings. It has closed
160 buildings managed under the contract, and reduced the annual cost of the
contract by £54 million (paragraphs 2.11 to 2.13 and Figure 6).
 Managing the HMRC estate  Summary 9

15 HMRC has also improved its working relationship with Mapeley and achieved
a better understanding of the performance of the contract. In 2009, the NAO found
that HMRC did not have full visibility under the contract of Mapeley’s gains and losses,
particularly on renegotiated leases that may ultimately affect its liabilities in the event of
contractor default. The Committee of Public Accounts recommended that HMRC should
insist that Mapeley provides much greater transparency about the financial performance
of the contract and its profitability. Since 2010-11, HMRC has had open access to
Mapeley’s books, giving it a good understanding of the operational and financial
performance of the contract (paragraphs 2.4 to 2.6, and Figure 12).

16 HMRC continues to manage the risk of the STEPS contract ending

prematurely. We reported in 2009 that Mapeley’s finances would continue to be finely
balanced for the foreseeable future and profits would remain low for the lifetime of the
contract. HMRC has continued to monitor and manage the risk to Mapeley’s financial
health since then, and has established a team to oversee the period until the end of
the contract. Should the contract not run until 2021, some buildings within the STEPS
estate would revert to HMRC’s ownership and responsibility, potentially leaving HMRC
with properties in poor condition that it no longer needs. In these circumstances, HMRC
would be faced with the costs of maintaining and improving buildings it does not intend
to stay in long term, and would need to manage the disposal of properties which might
not have a ready market (paragraphs 2.16 to 2.20).

Early indicators of the risks and challenges HMRC faces in

implementing its strategy
17 HMRC’s original plan has proved unrealistic. During the transition to regional
centres, HMRC must ensure that its service to taxpayers and its ability to collect tax
revenue are not impaired. It 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. It has concluded that its original plans were over-optimistic about the
availability of suitable properties and carried too high a risk of disruption to its business,
as they involved moving or replacing too many staff too quickly, while delivering other
major change programmes in parallel (paragraphs 3.7, 3.8, 3.14 and 3.15).
10  Summary  Managing the HMRC estate

18 HMRC is reconsidering the scope and timing of its moves to some regional
centres to reduce costs and delivery risks over the next five years. Since its
spending review settlement in November 2015, HMRC’s estimate of its estate costs over
the next 10 years has risen by nearly £600 million (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. HMRC is considering the actions necessary to reduce
this peak and stay within the funding it has secured between now and 2020-21. It tells
us that it will reach this decision shortly. (paragraphs 3.4 to 3.6 and Figure 8).

19 HMRC has reduced its estimate of the benefits of the programme and now
expects them to come later. As some of the moves to regional centres will now
happen later than HMRC had planned, it will be longer until HMRC starts to realise
savings. In the long term, it still expects its new estate to reduce its running costs. It
now estimates cumulative efficiency savings by 2025-26 of £212 million, reduced from
the £499 million estimated in its strategic outline case in November 2015. By 2025-
26, HMRC expects its annual running costs to be £83 million lower than they are now
(paragraphs 3.12 and 3.13).

20 Changes 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. It is looking at a range of options, including: 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. HMRC must manage the risk that such changes
compromise its objectives to improve the engagement, morale and productivity of its
workforce while achieving sustainable savings in the cost of running its estate in the long
run (paragraphs 3.7 to 3.11).

21 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. 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
(paragraphs 1.9, 1.10 and 3.19 to 3.22).
 Managing the HMRC estate  Summary 11

22 HMRC must manage the risk that it locks itself into long-term property
deals which limit its flexibility to change its future business model. HMRC is now
implementing its third major change programme since the merger of the Inland Revenue
and HM Customs and Excise in 2004. While the move to regional centres is consistent
with its wider transformation plans, it should not assume that the business model it
designs now will remain its optimal state indefinitely. HMRC therefore needs to weigh
the cost of property deals against the benefits of having the flexibility to make future
changes. It has not negotiated any break points in the 25 year leases it has signed so
far for regional centres in Croydon and Bristol. HMRC aims to provide flexibility through
a mix of lease terms across the estate, maintaining the ability to sublet to other parts
of government, and by working with the GPU to provide for future flexibility in the
design of cross-government hubs (paragraphs 3.26 and 3.27).

23 HMRC’s decisions and what it learns from the relocations are critical to the
success of the government’s plans to reconfigure its estate. HMRC’s decisions
about the buildings it will occupy will affect the choices other departments will have.
It is early days in implementing HMRC’s move to regional centres, but important
that HMRC takes stock of what it learns over the next few years, both to optimise
its own decision-making and to inform the plans of the GPU and other government
departments (paragraph 1.14).

Conclusion on value for money

24 It is important to see HMRC’s estate strategy in two ways. First as a major
programme in its own right, and second, as a component in HMRC’s wider business
transformation. From the standpoint of the estate strategy itself we can conclude that
the handling of HMRC’s STEPS contract has improved, and is more likely to deliver
value for money though significant risks remain. As far as the new programme is
concerned, HMRC has already recognised that its original plan was unrealistic and it
is considering how it can adjust the scope and timing of the programme to reduce the
cost and delivery risk. It is, of course, better management practice to recognise cost
underestimates early and to consider options for recovery early as well. However, we
think it important for HMRC to step back and consider the benefits afforded by the
wider business transformation, and whether they might be reduced or placed at risk
by cutting back on, or delaying, the estate plans, before going ahead.
12  Summary  Managing the HMRC estate

Recommendations
25 HMRC is seeking to implement an ambitious estate strategy alongside 14 other
major programmes designed to transform the way it administers the tax system. Many
of these programmes are interdependent. It is inevitable that not every aspect of the
transition to regional centres will run smoothly and HMRC must learn as it goes and
respond proactively as issues arise. It should:

a Improve its control of the costs of the new regional centres. HMRC needs to be
realistic in re-forecasting costs and guard against optimism bias. Given the inherent
uncertainty in the property market, it should plan for the worst case rather than
risk basing its plans on optimistic assumptions. It should put in place an adequate
contingency for the programme of regional centres as a whole to make it resilient
to emerging cost increases.

b Plan in detail how the infrastructure it is putting in place through regional centres
will support the ways of working its business aspires to. 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. It should prioritise engagement with its business to identify what
features of the new estate will be most important to support working practices
that will deliver the outcomes it is seeking.

c Put in place a process to learn lessons by analysing the costs and benefits of
occupying and operating regional centres. HMRC should be clear how it will
establish whether it is achieving the benefits it expects from its regional centres
once they become operational, and at what cost. It should identify and apply
good practice from its occupation of the Croydon regional centre in 2017, and
evaluate how its forecasts of the timetable, costs and benefits were affected by
events. It should build a framework to compare the performance of the regional
centres by identifying each centre’s annual running costs, service levels and
business outcomes.

d Build in flexibility to respond to future changes in technology and working practices.

In negotiating property deals for the regional centres, it must therefore balance
cost considerations against the benefits of retaining flexibility to make future
changes to its estate.
 Managing the HMRC estate  Part One  13

Part One

HMRC’s rationale for its estate strategy

1.1 As at November 2016, HMRC has over 200 properties spread across the United
Kingdom. Of these, 170 are office buildings but it has 40 properties of other types,
including garages, storage facilities, car parks and kennels. In 2015-16, it spent
£269 million on accommodating its 58,600 full-time equivalent employees, amounting
to 8% of its total running costs.

1.2 In 2001, HMRC sold its freehold properties, which formed two-thirds of its
estate, to Mapeley STEPS Contractor Ltd (Mapeley) for £370 million. This was part of a
20-year private finance initiative contract known as STEPS (Strategic Transfer of Estate
to the Private Sector). HMRC immediately leased back the properties from Mapeley, with
Mapeley providing facilities management and maintenance services. The remaining third
of HMRC’s estate is managed under smaller private finance initiative deals, and smaller
individual leases with landlords. HMRC also acts as the landlord for other government
departments, by subletting vacant office space. Its total estate covers 994,000 m2 in
floor area, of which 842,000 m2 is used by HMRC staff or operations.

1.3 In November 2015, HMRC set out its vision for a future estate. HMRC intends to
establish 13 new regional centres across the United Kingdom, supplemented by four
specialist sites. In the process, it will close 137 existing offices by 2021, keeping some
offices temporarily as transitional sites. It intends to retain a small headquarters on
Parliament Street in central London.

1.4 This part looks at how HMRC’s estate strategy was formulated, including how it is
designed to support HMRC’s organisation-wide programme to transform its business
and to align with wider plans to reconfigure the whole of the government estate.
14  Part One  Managing the HMRC estate

HMRC’s strategic case for reconfiguring its estate

1.5 HMRC developed its plan to move to regional centres as part of an integrated
strategic programme of change, which is one the largest organisational change
programmes in Europe. It has identified three main reasons why it is seeking to move
from a widely dispersed estate to regional centres:

• it considers a different estate is necessary to support the wider transformation

of its business;

• HMRC’s programme will support the wider civil service agenda to move to a
network of shared government hubs; and

• the end of the STEPS contract in 2021 provides an imperative for HMRC to act and
an opportunity to reconfigure its estate on a large scale.

Supporting the wider transformation of HMRC

1.6 HMRC’s programme to rationalise its estate is one of 15 major programmes it is
implementing concurrently to transform how it operates and administers tax. It aims
to become “one of the most digitally advanced tax administrations in the world”.
HMRC’s transformation is large and complex, and many of the programmes within it are
interdependent. For example, HMRC’s programme to move to regional centres is closely
aligned to its programme to create a more engaged and professional workforce with
the capability to operate a tax system which relies on the digital services and the better
use and analysis of data. Its plan for 13 regional centres aims to provide modern offices,
suited to automated systems and digital working. Figure 2 shows the activity that HMRC
will undertake over the next few years as it moves to its new ways of working.

1.7 HMRC sees regional centres as offering the right infrastructure to enable new
digital ways of working for its customers and staff, and a working environment that will
attract and retain talent, increase the flexibility of its workforce and provide economies
of scale. Figure 3 on pages 16 and 17 shows the location of HMRC’s offices before and
after the moves and summarises how HMRC believes the new estate will improve its
business. Figure 4 on page 18 shows the main principles HMRC has set to guide the
development of regional centres.
Figure 2
HMRC’s business and estate activities 2016–2022
Support for HMRC business activity
Customs declaration
Customs completion dates

Digital tax accounts Additional income Banks and building Making tax digital – Digital tax account Building our future –
Web chat declaration society links capital gains services digital
Support for Tax in one place Making tax digital – Making tax digital – Making tax digital – Complete
Authorised agents
Tax streams income tax and NI VAT corporation tax

Support for Tax-free childcare Tax-free childcare High income

families calculator child benefit charge

2016 2017 2018 2019 2020 2021 2022

Estate 170 dispersed offices 13 regional centres,

strategy four specialist sites, one HQ

Regional Strategic outline Croydon Liverpool Edinburgh Cardiff

centres business case Belfast Newcastle Leeds
opening Bristol Nottingham Manchester
Birmingham Glasgow
Stratford, London
Office
closures
26 office closures 24 office closures 12 office closures 41 office closures 28 office closures
4,000 FTE staff 3,300 FTE staff 2,300 FTE staff 16,400 FTE staff 7,500 FTE staff
affected affected affected affected affected

HMRC estate activity

Decisions required on STEPS contract ends
all STEPS properties

Notes
1 For business activities the date shown is the completion date for each programme, taken from HMRC’s single departmental plan, 2015–2020.
2 For regional centres we show the opening date for each regional centre, taken from the strategic outline business case, revised September 2016.
3 Office closure dates taken from most recent public announcement of November 2015, combined with HMRC data on office FTEs.

Source: National Audit Office analysis of HM Revenue & Customs’ transformation documentation
Managing the HMRC estate  Part One  15
16  Part One  Managing the HMRC estate

Figure 3
How HMRC is transforming its estate
Current position – 170 offices

Headquarters
Current office

• 58,600 employees in 170 offices,

dispersed across the UK.

• Offices in locations for historical

reasons, sometimes isolated from
other government departments.

• Older buildings, unable to adapt to

new ways of working.

• Many small buildings with limited

career opportunities or flexibility to
redeploy staff.

• Single large PFI contract covering

estate and facilities management in
two-thirds of HMRC’s properties.

• Estate reduces staff morale

and productivity.

Source: National Audit Office analysis

 Managing the HMRC estate  Part One  17

Future position – regional centres and specialist sites

Headquarters
Regional centre
Specialist site

• 50,000 employees in 13 large regional

centres, four specialist sites and
one headquarters.

• Offices based in city centre locations,

forming part of government hubs, close
to universities and colleges, and with
stronger skill base and talent pipeline.

• Modern, flexible regional centres to

support HMRC transformed business.

• Large regional centres offering wider

opportunities for employees to develop
their careers.

• Estate managed primarily by HMRC with a

number of separate contracts and service
providers in three areas of the UK.

• Estate supports a professional,

efficient and engaged
organisation.
18  Part One  Managing the HMRC estate

Figure 4
HMRC’s principles for its regional centres

Location requirements:

• Centre in each region of the UK

• Accessibility for staff to travel to work

• Good local supply of housing, schools

and recreation facilities

• Access to a workforce with the skills

HMRC needs

• High speed broadband and mobile networks

Expected benefits: Proposed characteristics:

• Reduction in estate running costs • Single building or several neighbouring buildings

• Improved working environment • Accommodating between 1,100 and

5,000 staff in each
• Adaptable and efficient modern work space
• Giving staff the means to progress their own
• Encourages changes in working culture
careers while remaining in the same regional centre
• Enables working across different functions
• Providing staff with training and
carried out in the centre
development on site
• Flexibility to move staff at times of high demand

Source: National Audit Office analysis of HM Revenue & Customs’ strategic outline business case

1.8 An important feature of regional centres is that they should enable HMRC to work
in ways which will serve customers better and increase the efficiency and effectiveness
of its work to prevent and deter tax evasion and avoidance.

1.9 In moving to digital services, HMRC aims to serve its customers primarily online,
supported by other channels which will offer taxpayers the additional help and advice
they may need. These include its needs enhanced services, providing additional support
for those that find using digital channels challenging. It closed its face-to-face enquiry
centres in 2014 and is promoting the take-up of self-service, including by providing every
taxpayer with a digital tax account, much of which HMRC aims to pre-populate with
accurate, personalised data. It has assessed that a local presence in a high proportion
of towns across the United Kingdom is not necessary to provide such a service, and
that the co-location of customer service operations in large regional centres will help
it to serve its customers more effectively.
 Managing the HMRC estate  Part One  19

1.10 The customer compliance group has assessed that basing its teams in regional
centres will help the sharing of knowledge between employees with different areas of
expertise and improve its understanding of how tax risks apply to different population
groups. It also considers that bringing staff together in regional centres will present
opportunities to improve team management, and enable staff to have a greater range
of work, gain wider experience, and have greater opportunity for career development.
It expects to more than offset the deterrence effect of a permanent physical presence
in many localities by a more mobile and skilled workforce with better access to the
intelligence needed to target its compliance activities in the right areas.

Supporting the creation of government hubs for the wider

government estate
1.11 In 2014, the government set out its strategy to use government office space more
efficiently and to dispose of surplus property. The Government Property Unit (GPU),
which leads and coordinates the management of the government estate, aims to reduce
the number of office buildings by 75% (80% in London) by 2025. It intends to establish
large, flexible, cross-government hubs across the United Kingdom, in key locations with
good transport links. It intends that in the long term these will have around 6m2 of office
space per full-time equivalent member of staff. The GPU has assessed that shared
government hubs will enable departments, agencies and local bodies to work more
collaboratively, and their staff to work flexibly. It also expects that these hubs will attract
and retain skilled staff.

1.12 HMRC’s strategy for a new estate of regional centres is closely aligned to the
GPU’s proposals for government hubs. The locations which HMRC selected for its
regional centres match the GPU’s proposed locations for hubs. In these hubs, HMRC
aims to share space, services and facilities with other departments, agencies and local
bodies. HMRC’s strategy for regional centres also intends that this will give its staff
opportunities to work across the government departments in these hubs, providing
more job and career development opportunities. The GPU has yet to announce the
detail of its plans and chosen locations, but it is likely to have a greater number of
centres than HMRC’s plan for 13 regional centres.
20  Part One  Managing the HMRC estate

1.13 HMRC intends to have an estates service headquarters in Nottingham, plus a

small service in each of its locations. It is not yet clear how HMRC is aligning its plans
to manage the regional centres’ estate itself with the GPU’s intention to centralise the
ownership and management of the public estate within the new property model.

1.14 HMRC’s decisions and what it learns from the relocations are critical to the
success of the government’s plans to reconfigure its estate. The timing of HMRC’s
plans, created by its imperative to take decisive action before the end of the STEPS
contract, place it in the vanguard of government’s proposed move to shared government
hubs. This means HMRC’s decisions about the buildings it will occupy will affect the
choices other departments will make. It is early days in implementing HMRC’s move to
regional centres, but important that HMRC takes stock of what it learns over the next
few years, both to optimise its own decision-making and to inform the plans of the GPU
and other government departments.

Opportunities to reconfigure its estate

1.15 HMRC has recognised and acted early on the opportunity to deliver a new estate
to support the transformation of HMRC. It considers that a large, long-term outsourced
contract such as STEPS is no longer the best way to provide the estate it needs, and
no longer aligns with wider government objectives. It is committed to leaving the STEPS
contract when it ends in 2021, but must give notice to its PFI provider by 31 March 2019
of its intentions for each building. This places additional pressure on HMRC to make
decisions quickly. HMRC will have to negotiate new rental agreements for any properties
it retains after expiry of the STEPS contract. It has assessed that if it were to sign new
leases, it would see an increase in rental costs and service contracts.

1.16 HMRC also outlined that its estate is too large and it has a poor utilisation rate
with staff working in the wrong place and with a demand for additional space in more
strategic locations. Its strategic outline case stated it had a total of 15 m2 of office space
per full-time equivalent member of staff, compared with the government’s target of 8 m2
by 2018.2 HMRC considers that much of its estate is in poor condition, and that this
affects staff morale and productivity. HMRC also believes that its estate already creates
operational issues and that it does not give it the flexibility it needs to transform the
way it works.

2 This figure includes all HMRC property and is the figure HMRC quotes in its strategic outline cases of November 2015
and September 2016. Its Government Property Unit benchmark result is 9.8 m2 per full-time equivalent having excluded
non-office space and offices already set for vacation.
 Managing the HMRC estate  Part One  21

1.17 HMRC initially expected that regional centres would save £405 million over the
period 2016-17 to 2024-25 and that the programme would see a payback period of,
at most, 11 years when compared with what it currently pays under its current estate
contracts. HMRC estimated that running costs in its new estate, covering leases,
facilities management and utilities, would save between £80 million and £100 million
each year after 2025.

1.18 The basis for HMRC’s strategy was a financial model to forecast the cost of setting
up and running a new estate, and the savings or benefits generated by closing its existing
estate. HMRC designed the model to run scenarios around the future size of its estate,
and dates and development options, to forecasts costs for each option. This included a
‘do nothing’ option, which estimated the estate costs that HMRC would incur, through to
the expiry of the STEPS contract in 2021.

1.19 HMRC also used the forecast cost as a basis for considering whether its concept
of regional centres was affordable. However, HMRC did not define ‘affordability’, and did
not set a maximum amount that it was willing to spend on its new estate.

1.20 HMRC’s financial model aimed to forecast the cost for each regional centre, based
on costs that would be specific to each region (for example rental costs), and those
costs which it thought would be constant across each option (for example, the costs
per square metre of facilities management, cleaning and security). HMRC obtained
estimates of the costs of these services from property experts. It analysed information
on the commercial property market in each region, provided by external property
analysts, and validated the information internally.

1.21 The model indicated significant differences in the cost forecasts between each
region, with London the most expensive, and Northern Ireland the cheapest. HMRC
acknowledges that in its initial planning, it could have done more to apply these differences
in forecast costs per region to direct common work to the lowest cost regions. HMRC is
now considering this option as part of its measures to control cost increases.
22  Part One  Managing the HMRC estate

HMRC’s strategic outline case for regional centres

1.22 The strategic outline case provided a broad statement of HMRC’s intended
business outcomes and benefits from regional centres, as outlined in Figure 4.
It included a ‘benefits logic map’, which aimed to link outputs and benefits to its strategic
objectives. The risk assessments in the strategic outline case were optimistic, both in
terms of the severity of the risks and of their mitigation. HM Treasury’s approval process
for HMRC’s estate programme highlighted affordability constraints in the strategic outline
case. The strategic outline case was based on location specific advice from HMRC’s
property advisor but without direct consultation with developers. HMRC had not
defined some of the benefits at that time, or how they related to different stakeholders.
The strategic outline case did not set out expected performance outcomes or a plan
for realising the benefits from regional centres. It also did not feature a critical path for
moving to regional centres.
 Managing the HMRC estate  Part Two  23

Part Two

HMRC’s management of the STEPS contract

2.1 HMRC manages two-thirds of its estate through a single private finance initiative
(PFI) known as STEPS (Strategic Transfer of Estate to the Private Sector). The remaining
third of HMRC’s current estate is managed under smaller PFI deals and individual leases
with landlords.

2.2 STEPS is a 20-year deal set up in 2001 with Mapeley STEPS Contractor Ltd
(Mapeley). Under the deal, HMRC sold its freehold properties, which comprised
two-thirds of its estate, to Mapeley for £370 million. HMRC immediately leased
back the properties from Mapeley, with Mapeley providing facilities management
and maintenance services. As HMRC has reduced its workforce over this period,
it has moved out of some of these buildings each year. This part looks at HMRC’s
management of its STEPS contract since our last report and how it is preparing for
the end of the contract in 2021.

HMRC’s response to previous recommendations by the NAO

and Committee of Public Accounts
2.3 We reported on the STEPS contract in 2004 and 2009.3 In our 2004 report, we
identified significant risks with STEPS that HMRC needed to manage carefully. In 2009,
we found that HMRC had not been managing those risks effectively, and it had not
realised all the benefits available from the contract. In particular, HMRC had not made
all the savings possible by moving out of as many buildings as the contract allowed.
We also found that HMRC did not have full visibility under the contract of Mapeley’s
gains and losses, particularly on renegotiated leases that may ultimately affect its
liabilities in the event of contractor default.

2.4 We recommended in our 2009 report that HMRC should strengthen its
management of the contract and that senior managers should work directly with
Mapeley’s board to resolve issues, agree strategies and manage risks. Having taken
evidence on our report from HMRC and Mapeley, the Committee of Public Accounts
recommended that HMRC should insist on much greater transparency about the
financial performance of the contract and its profitability to Mapeley.

3 Comptroller and Auditor General, HM Revenue & Customs’ estate private finance deal eight years on, Session 2009‑10,
HC 30, National Audit Office, December 2009; and Comptroller and Auditor General, PFI: the STEPS deal,
Session 2003-04, HC 530, National Audit Office, May 2004.
24  Part Two  Managing the HMRC estate

2.5 HMRC has responded positively to the recommendations of the NAO and the
Committee of Public Accounts (Appendix Three). HMRC now employs a specialist team
which oversees the contract and will do so for the remainder of its time. In 2011, HMRC
and Mapeley signed a memorandum of understanding to recognise HMRC’s need for
financial transparency and Mapeley’s need to know about HMRC’s future plans. Both
Mapeley and HMRC told us that they have since had a good working relationship and are
open and honest with each other about performance, and future plans and requirements.

2.6 Since 2011, Mapeley has given HMRC access to a range of financial information
relating to the STEPS contract and the financial health of the company. This includes
management accounts, financial forecasts, loans and inter-company funding. This
enhanced access has provided HMRC with much greater transparency about Mapeley’s
ability to meet its obligations to HMRC under the STEPS contract, helping HMRC
to understand and manage risks to the delivery of services.

Evaluating Mapeley’s performance

2.7 HMRC pays Mapeley approximately £12 million each month. In return, Mapeley
provides HMRC with the right to occupy the fully-serviced office accommodation
under the STEPS contract. Mapeley provides day-to-day facilities management and
estate maintenance. HMRC monitors the whole life cost of the project as a measure
of value for money. Its latest estimates suggest that the whole life cost of the contract
will be £4.2 billion.4 This is £213 million more than it originally forecast. The increase is
due to higher inflation than forecast, payments for additional buildings which were not
part of the original contract, and legacy settlement charges, which were not included in
the original financial model. HMRC has improved its control of the costs of the contract
since 2009, primarily by making use of the allowances within it for leaving buildings.

2.8 Each year, HMRC assesses the STEPS contract against 13 qualitative performance
measures covering three areas: the contract’s ability to support HMRC’s transformation;
the quality of the working environment; and Mapeley’s management of the contract
(Figure 5). Performance against most of these criteria has not fully met HMRC’s
requirements. HMRC assessed that the worst-performing area was the maintenance
of required accommodation standards.

2.9 Performance deteriorated across a range of measures in 2013-14. HMRC was

critical of Mapeley’s failure to manage the performance of subcontractors, due to
shortcomings in the way Mapeley sought to bring more of its facilities management
services in-house. HMRC took action to address the areas of concern with Mapeley,
such as by developing systems to monitor progress, setting improvement targets and
using appropriate contract measures. In it’s most recent report covering 2014‑15,
HMRC has assessed that Mapeley’s performance under the contract has improved.
However, Mapeley’s performance in 2014-15 remained below the quality standards
HMRC had set out in its invitation to tender.

4 Based on HMRC’s most recently available value-for-money report, covering the reporting year 2014-15. The 2015-16
report was not available at the time of publication.
 Managing the HMRC estate  Part Two  25

Figure 5
HMRC’s assessment of the performance of the STEPS contract against qualitative
performance measures
Mapeley’s performance has not fully met HMRC’s requirements

Percentage

100

80

60

40

20

0
2011 2012 2013 2014 2015
Mapeley’s Management of the contract 53 78 67 35 67
Quality of the working environment 61 54 54 45 54
Ability to support departmental transformation 43 56 43 30 46

HMRC uses 13 qualitative measures to measure the performance of the STEPS contract. Each measure is scored from zero to
three depending on how well performance meets HMRC’s requirements. It is weighted on the measure’s importance in reaching
HMRC’s strategic goals. The 13 measures are –

Ability to support departmental transformation: Mapeley’s management of the contract:

• ability to support HMRC estate strategy;
• management of services and properties portfolio;
• provision of new facilities; and
• management information systems and communication with HMRC;
• management of change.
• availability, performance measurement system and incentives;

• designated contact point (helpdesk) and additional services; and

Quality of the working environment: • performance-driven organisational and management structure.
• maintenance of required accommodation standards;

• health and safety service;

• utilities and environmental service;

• securities services; and

• provision of cleaning and catering services.

Source: Analysis of HMRC’s internal assessment of performance of the STEPS contract as outlined in HMRC’s value-for-money reports
26  Part Two  Managing the HMRC estate

2.10 The contract allows for HMRC to deduct some payments from Mapeley if
Mapeley does not meet contractual requirements. In 2014-15, HMRC’s payments to
Mapeley for facilities management were reduced by just under £700,000 for Mapeley’s
underperformance in that year. This equates to around 2% of what HMRC pays to
Mapeley annually for this part of the contract and 0.5% of the total annual contract value.

Vacating unwanted space

2.11 The STEPS contract gave HMRC flexibility to move out of properties during the
contract at no additional cost. The pace at which HMRC can do this is determined by
the annual allowances agreed in the contract. In our 2009 report on the STEPS contract,
we reported that HMRC had not taken full advantage of all the flexibility available to it.5
We found that, by March 2009, HMRC had saved £52 million from moving out of STEPS
properties, compared with the potential £151 million it could have saved had it used
its allowance at the earliest opportunity. HMRC responded to recommendations and
developed a building-by-building closure plan.

2.12 In 2011-12, HMRC used up the allowances it had accumulated from previous years.
It has since used almost 100% of the available allowance on ‘core’ buildings, and 85% of
the allowance it had built up to vacate ‘flexible’ buildings (Figure 6).6

2.13 Since 2009, better use of the flexibility in the STEPS contract has enabled HMRC to
vacate buildings and realise its estate savings targets. Between 2011 and 2016, HMRC
vacated nearly 300 properties in total, of which 169 were managed by Mapeley under
the STEPS contract. Of these 100 properties were enquiry centres. These were walk-in
centres providing face-to-face help with tax queries, which HMRC closed in 2014 following
a period of falling demand. HMRC achieved cumulative savings in the cost of its estate
of £354 million in this period, reducing its annual running costs by 30% to £269 million.
Its total floor area decreased by a similar proportion from 1.4 million to 994,000 m2.

5 Comptroller and Auditor General, HM Revenue & Customs’ estate private finance deal eight years on, Session 2009-10,
HC 30, National Audit Office, December 2009.
6 Core buildings are those that HMRC expected to need for the full 20 years. Flexible buildings are buildings that HMRC
expects to vacate at some point during the 20-year contract. Intermediate buildings are those that have specified dates
that HMRC can vacate at the earliest at no additional cost.
 Managing the HMRC estate  Part Two  27

Figure 6
Utilisation of vacation allowance within STEPS
HMRC has used up almost all the allowances available on its STEPS contract to vacate buildings

Core buildings m2

250,000

200,000

150,000

100,000

50,000

0
04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21
Year

Flexible buildings m2
160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0
04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18 18-19 19-20 20-21
Year

Cumulative vacation allowance

Square metres vacated to date

Source: National Audit Office analysis

28  Part Two  Managing the HMRC estate

Preparing for the end of the STEPS contract

2.14 HMRC recognises the challenges and risks involved in moving out of its current
buildings. HMRC and Mapeley are jointly planning for the expiry of the STEPS contract
and both parties recognise the importance of openness about their plans in the remaining
few years of the contract. They have developed a joint strategy for buildings under the
STEPS contract. This strategy aims to provide benefits for both organisations and to
ensure that Mapeley has sufficient incentives to continue the partnership until 2021.
HMRC and Mapeley both told us that they want the contract to run to full term in 2021.

2.15 The two organisations have held joint workshops to discuss each of the existing
buildings in the estate. These workshops have considered the lease type and terms
for each building and HMRC’s expected occupancy needs. They have helped Mapeley
to understand which buildings HMRC plans to vacate and when, and to consider the
implications for its future management of each property.

Managing future risks and liabilities

2.16 HMRC is still developing its plans for its future estate and, where it can, it aims to
occupy regional centres before the STEPS contract ends in March 2021. But HMRC
recognises it may need to remain in some buildings managed under the STEPS contract
beyond 2021. If it changes the timeline for regional centres, HMRC may need to remain
in a larger number of buildings than its plans so far have implied. HMRC recognises
that the terms of contracts for those sites will need to be renegotiated, and that in most
cases it will require shorter-term leases with early break points.

2.17 HMRC’s strategic case for regional centres estimated that if it stayed in STEPS
properties beyond 2021, it would see an increase in its rental and service costs. Its aim
to occupy regional centres before this happens has meant in some locations having to
balance the need to achieve timely occupancy against cost and quality.

2.18 HMRC has identified a number of risks for the remaining years of the STEPS
contract. These include: non-compliance with legislation or regulations; instability of the
supply chain; lack of life cycle investment; failure to meet service delivery targets; and
failure to meet avoidable waste targets.
 Managing the HMRC estate  Part Two  29

2.19 We reported in 2009 that Mapeley’s finances would continue to be finely balanced
for the foreseeable future and profits would remain low for the lifetime of the contract.7
HMRC has continued to monitor and manage these risks on the contract closely since
then. Should the STEPS contract come to a premature end, buildings within the STEPS
estate would revert to HMRC’s ownership. In these circumstances, HMRC would be
faced with the costs of maintaining and improving buildings it does not intend to stay
in, and would need to manage the disposal of properties which might not have a ready
market. HMRC has taken action to manage this risk, putting a specific team in place
to oversee the period to the end of its PFI arrangements.

2.20 HMRC has engaged external experts to assess how large its financial commitments
could be following any sudden loss of services under the STEPS contract. HMRC has
developed business continuity plans to manage the risks of loss of services under the
contract. Its plans aim to ensure that the estates services can continue to support
HMRC overall. If any estates related service should be lost, HMRC has defined the
procedures to follow to restore the service and communicated these to relevant
staff. HMRC has assessed the likely scenarios that could affect estates services
and day‑to‑day operations, as part of developing its responses.

7 Comptroller and Auditor General, HM Revenue & Customs’ estate private finance deal eight years on, Session 2009-10,
HC 30, National Audit Office, December 2009.
30  Part Three  Managing the HMRC estate

Part Three

Early indicators of the risks and challenges

HMRC faces in implementing its strategy
3.1 This part examines HMRC’s progress to date in implementing its strategy and
the risks and challenges it faces. It is early days in implementing the strategy. We have
therefore looked at what HMRC has learned from its experience of developing its plans
and cost estimates over the last 18 months in the context of a programme that will take
10 years to complete.

HMRC’s arrangements for overseeing the development and

delivery of the programme
3.2 HMRC has put in place a clear governance structure to oversee the programme
to transform its estate (Figure 7):

• The executive committee is made up of the most senior managers across the
whole of HMRC’s business and oversees delivery of HMRC’s entire transformation
programme, including its estate strategy.

• The investment committee makes investment decisions on behalf of the executive

committee. It has scrutinised the initial and revised strategic outline case for the
new estate and the outline business cases for individual regional centres.

• The locations programme board considered the strategic case for HMRC’s
new estate and continues to make recommendations about how the programme
should develop. It considers emerging risks, affordability and timing, and proposed
changes to the programme and its forecast costs and benefits. The board includes
membership from HM Treasury, the Government Property Unit (GPU) and the
Infrastructure and Projects Authority.

3.3 We have seen evidence that the programme board, investment committee and
executive committee have provided robust challenge to the proposals put before
them. Each group has recognised that the estates programme faces pressures on its
budget, timetable and to business disruption and have asked for more analysis and the
consideration of wider options where they have considered this necessary. As a result
of such challenge, HMRC does not yet have an agreed programme business case.
Figure 7
HMRC’s framework for governance and control of the estates programme

Executive Committee
for Transformation

Transformation Board Investment Committee

The Stakeholder and communications The Programme Sponsor

strategy group directs and steers the Stakeholder and Programme Sponsor Group Group provides senior level
programme on effective stakeholder communications sponsorship and oversight for
engagement and communications strategy group the Programme
across internal and external
stakeholders and audience groups

The Design Working Group The Programme Board integrates

consolidates the business requirements Design Working Group Programme Board and schedules Programme activities
for the Programme and manages to deliver the Programme
changes to these requirements

The Programme Manager’s Checkpoint Within each region, the Regional

coordinates the day-to-day work of Programme Manager’s Regional Implementation Implementation Board coordinates design,
project managers Checkpoint Boards delivery, stakeholder management and
communications activities

Source: National Audit Office analysis

Managing the HMRC estate  Part Three  31
32  Part Three  Managing the HMRC estate

Actions HMRC is considering to address emerging cost

increases and delivery risks
3.4 HMRC does not yet have an agreed strategic outline case. It is developing its
plans to reduce the risk of disruption to its business and reduce the costs over the
next five years. HMRC’s executive committee has said that the original strategic outline
case, on the basis of which HM Treasury agreed funding in late 2015, was unrealistic.
In September 2016, HMRC updated its strategic outline case with a revised forecast of
the costs and timeline of the programme. The total cost of the new estate over 10 years
(including investment and running costs) rose by almost £600 million (an increase of
22%). The revised business case forecast investment costs of £495 million between
2016-17 to 2020-21, with additional spending beyond 2021, bringing total investment
costs to £588 million by 2025-26. HMRC had previously forecast no investment costs
beyond 2020-21. It estimated that the average annual running cost of the new estate
over these 10 years would be £160 million, a 27% increase in HMRC’s original estimate.
In the longer term, its forecast for annual running costs has increased from around
£150 million to £180 million per year.

3.5 The increase in the forecast costs is largely due to: changes in programme scope,
to include specialist and transitional sites; the requirement to bring pay costs into the
programme; higher rental costs than anticipated; and increased allowances for exits
and daily travel allowances. Having consulted the property market, HMRC concluded
that suitable property would not be available in some of its chosen locations within the
time frame set out in its 2015 spending review settlement. The revised business case
also set out that the financial benefits HMRC had estimated from the new estate would
be reduced by likely changes to the timetable for occupying regional centres, requiring
HMRC to keep existing offices open for longer.

3.6 Figure 8 shows how HMRC’s forecast investment and running costs for its estate
rose between November 2015 and September 2016. It also shows that HMRC now
expects it will take 14 years to pay back its investment in the programme, against its
original estimate of up to 11 years.

3.7 HMRC has also identified that changes to the timetable for regional centres meant
that it had too much activity scheduled in the later years of the spending review period,
in particular in 2019-20. It concluded that this would lead to an unacceptably high risk of
disruption to its business, as it would be unable to serve its customers adequately while
moving so many of its employees to new accommodation.

3.8 In September 2016, the Infrastructure and Projects Authority carried out an
independent assurance review of HMRC’s estate programme and reached similar
assessments of the risks. At the time of the review, the programme received a low
confidence rating, indicating that delivery of the programme is ‘in doubt’. It said that
HMRC had established the programme on a strong foundation of committed leadership,
clear links to corporate plans and policies, and effective engagement with internal and
external stakeholders. However, it also considered that HMRC had to move quickly,
having encountered difficulties with schedules, costs and affordability.
 Managing the HMRC estate  Part Three  33

Figure 8
HMRC’s forecasts for the costs of its new estate have risen between November 2015 and
September 2016
Strategic outline case, Strategic outline case
November 2015 (SR15 bid) September 2016
Area of expenditure 5 year (£m) 10 year (£m) 5 year (£m) 10 year (£m)
Investment costs 413 413 495 588

Of which:
Estate investment 212 212 192 194
IT and digitisation 34 34 47 47
Daily travel allowance 17 17 19 54
Employee exits 149 149 165 203
Additional costs (eg pay bill Not Not 73 91
and communications) included included
New accommodation running 389 1,259 529 1,590
costs (total)
Legacy accommodation (total) 976 977 1,049 1,066

Total cost 1,778 2,649 2,073 3,243

Estate efficiencies (costs) 55 499 (127) 212

Payback period At most 14 years
11 years

Notes
1 Investment costs until 2021 have risen due to: changes in scope to include a new specialist site and a new transitional site (£22 million); the inclusion of the
cost of the specialist team needed to run the programme (£27 million); an increase in the cumulative costs of digital and IT support, communications and
business readiness activity (£14 million); and increases following property market consultation (£10 million).
2 In its November 2015 bid, HMRC did not expect or include investment costs beyond 2021.

Source: Analysis of HM Revenue & Customs’ strategic outline business cases, November 2015 and September 2016

3.9 The review noted that HMRC was facing challenges in getting ready for the move
to regional centres. This applies particularly to the Croydon regional centre, which
HMRC is due to open in summer 2017. The review emphasised the need for good
coordination across HMRC to ensure that everyone involved in the moves understood
what was expected of them. It also asked HMRC to provide more clarity about what
changes in working practices were required across its business and to coordinate its
design of regional centres accordingly.
34  Part Three  Managing the HMRC estate

3.10 HMRC’s executive committee has therefore been considering options to manage
the risk of disruption to the business and to reduce the cost of the programme.
These include:

• the timelines 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;

• the addition of an additional transitional site in East London to ease the disruption
in the South East;

• where best to undertake new recruitment; and

• how best to deliver new flexible ways of working, including changes to working
patterns for new recruits.

3.11 HMRC’s executive committee has already agreed some proposals for reducing
costs, but has sought further analysis of some of the options proposed in order to
reduce further the risk of business disruption. The proposals which the executive
committee has agreed so far would reduce the total spending on the estate by nearly
£150 million up to 2020‑21, but would defer some spending to a later date.8

3.12 If HMRC amends its timetable for opening regional centres, it will need to extend
or renegotiate the leases on some of its current buildings, or move quickly to find new
temporary accommodation. Such decisions would have cost implications and thereby
defer the savings that the programme delivers. HMRC recognises that should it decide
to change the size of some regional centres or move work to cheaper locations, potential
savings may be offset if more employees leave HMRC, leading to potential loss of skills
and capability. HMRC recognises that all of the measures it is considering carry a risk
to the continuity of its business.

3.13 If regional centres open later than originally planned, it will be longer until HMRC
starts to see savings from its new estate. In the long term, HMRC still expects its
new estate to provide better value for money. In its updated strategic outline case
of September 2016, HMRC estimated cumulative efficiency savings by 2025-26 of
£212 million, reduced from £499 million when it produced its first outline case in
November 2015. It expected to see a payback from its investment by 2029-30 and
estimates a 25-year net present value of £430 million. HMRC expects its future estate
to cost around £83 million less a year by 2025-26, compared to its current estates costs,
and to be £86 million a year less from 2028-29.

8 The £150 million figure is an indicative estimate which should reduce total spending by 2020-21 from £2.073 billion
to £1.925 billion.
 Managing the HMRC estate  Part Three  35

Implications of the programme on HMRC’s employees

3.14 As part of its initial planning for regional centres, HMRC carried out an assessment of
the impact on its people. The assessments included the risks that it would lose experience
and key skills in the move to regional centres, and that early departures could put pressure
on remaining staff and disrupt HMRC’s business. The assessments identified ways to
manage these risks. Our analysis of relocations by other public sector bodies indicates that,
in some cases more staff than anticipated chose to leave the organisation. The resultant
loss of expertise can then have a negative impact on the organisations’ capability.9 The
need to recruit and train new staff in the regional centres will increase the challenge to
HMRC in managing the transition.

3.15 We estimate that around 38,000 staff currently work in offices scheduled to
close. In its latest forecast, HMRC has increased its estimates of exit costs on the
basis that around 5,000 of its employees may leave. To help as many staff as possible
move to regional centres, it has also increased its estimate of the travel allowances it
will pay. Figure 9 overleaf shows the locations planned for the regional centres and
the current offices linking to them.

3.16 The average distance between offices that HMRC is closing and its planned
regional centres is 18 miles.10 Most offices that HMRC is closing are within 50 miles by
road of their respective regional centre, except for in the South West, the East and the
South East, where HMRC’s existing offices are more dispersed.11 About 100 full-time
equivalent staff are based in offices in the South West that are over 100 miles from Bristol
regional centre. The longest distance between an HMRC office due to close and the
nearest regional centre is 174 miles, from Redruth in Cornwall to Bristol regional centre.
In Scotland, HMRC expects a high proportion of staff exits from its offices in Aberdeen,
and to a lesser extent Dundee, as their work moves to Edinburgh regional centre.

3.17 By contrast, HMRC’s offices in the East Midlands, North East, North West, Wales
and Northern Ireland are more concentrated around the cities in which the future
regional centres will be. In the North West, about two-thirds of existing staff are within
five miles of either Liverpool or Manchester, the two regional centres in the region.

3.18 HMRC has sought to be open and transparent about its plans, consulting its
employees at the outset and communicating from an early stage with all those affected
about the potential implications. It gave details of the potential changes to their
workplace and roles, future workplace(s), travel times and any compensation available
to them (Figure 10 on page 37).

9 Professor Sir Charles Bean, Independent review of UK economic statistics, March 2016.
10 This is calculated as the average driving distance from the current office to the city centre of the chosen locations,
weighted by the number of full-time equivalent staff in each office.
11 We have used driving distance in our analysis, although HMRC expects staff to use public transport to get to work
wherever possible.
36  Part Three  Managing the HMRC estate

Figure 9
HMRC regional centres and links to the current offices which will transfer work and staff to
each regional centre
Specialist site
Stepping stone site
Transitional site
The lines link the locations of HMRC’s
current offices and the regional centre
to which their work and staff will transfer

Glasgow Edinburgh

Newcastle

Belfast

Manchester

Leeds

Liverpool

Nottingham

Birmingham

Stratford

Cardiff

Croydon

Bristol

Source: National Audit Office analysis

 Managing the HMRC estate  Part Three  37

Figure 10
Key features of HMRC’s communications with staff on the regional
estates strategy
Events and staff survey
HMRC began sharing plans for transforming its operations with staff in May 2014. In the first phase of
communications, HMRC:

• held around 2,000 events, involving around 54,000 staff;

• carried out a survey, which produced 27,500 responses; and

• summarised the feedback received on its staff intranet.

One-to-one discussions with staff

HMRC has emphasised that it is not able to give staff certainty over the timings and nature of moves from
their current workplace. HMRC managers are holding individual discussions with staff. These tell staff
“what we know, when we know it”, rather than make a commitment on future dates and locations, as it may
change its plans and requirements. The one-to-one meetings between managers and staff may cover:

• whether they live within reasonable daily travel of a regional centre(s) and, if so, which regional centre is
more suitable for them, based on their individual circumstances and convenience of travel;

• the intended year in which the regional centre(s) will open;

• the intended time at which the current offices will close;

• whether HMRC is considering redeploying the person into a new role as part of the moves and when
this might happen;

• for staff who live outside of reasonable daily travel to a planned regional centre, the opportunity to
say whether they would still like to travel to another office, or apply to leave under the voluntary exit
scheme; and

• for staff who are not moving to a ‘stepping stone’ office or directly to a regional centre, where they will
continue to be based and the office closure date.

Source: National Audit Office analysis

3.19 The changes HMRC is considering will inevitably increase uncertainty among some
of its employees and have the potential to harm its relationship with them unless clear
communications are maintained. In some cases, these changes could be significant,
such as the possibility of moving in a different time frame. HMRC continues to work to
minimise the potential of staff making more than one transitional move before moving to
a regional centre. It is also now considering how it can bring forward its plans for flexible
working, which might forego or defer some of the benefits it anticipates from bringing
staff together in regional centres. HMRC is also reconsidering its requirements for its
Croydon site, for which it may accelerate some moves. Some employees may therefore
receive short notice of how the changes may affect them.
38  Part Three  Managing the HMRC estate

3.20 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. In its strategic outline case of September 2016,
HMRC stated that two of its key dependencies are that its lines of business deliver
a clear set of requirements and have robust business readiness plans for the move.
In some regions, the size of the regional centre is not aligned to the amount of work set
out by the lines of business. It is not clear how this variation will be accommodated, or
how it may affect operational performance in the process.

3.21 The review by the Infrastructure and Projects Authority also recommended that
HMRC made changes to its working practices prior to the moves to regional centres.
HMRC intends to move its first staff to its Croydon centre in Summer 2017, creating
challenges in making these changes prior to the move. Both HMRC’s lines of business
and its estates team have significant work to do to achieve these changes.

3.22 The customer compliance group recognised that the move to regional centres
involved risks in retaining its specialist and experienced staff, which may lead to
disruption to its work and costs in replacing staff. Staff that will be recruited at the new
regional centres may have lower initial performance and may take time to reach the
productivity levels of more experienced staff.

Managing the regional centres’ estate

3.23 HMRC has made progress in developing the leadership, management and
commercial skills needed in the transition to regional centres. It has put together a team
to focus on transforming its estate. The team includes external recruits, brought in to
provide additional management capacity and capability on estates. HMRC will change
the composition of this team to reflect the skills needed, as regional centres progress
from planning to implementation and evaluation. The transformation team grew to around
40 people, reporting to HMRC’s Director of Estates Transformation. HMRC also brought
in additional external expertise, to provide information on local property markets, and to
give advice on aspects such as commercial fit out of the new estate, to meet HMRC’s
operating needs.

3.24 HMRC has developed a future operating model for estates services to determine
how it will run estates functions within regional centres. HMRC is using the model to
develop its strategy for: facilities management; support services, such as security, health
and safety and IT; and how it will manage contracts with suppliers. It is developing an
understanding of the new skills the estates service will need to carry out these functions
and the costs of the services.
 Managing the HMRC estate  Part Three  39

3.25 In its new estate, HMRC expects to commission a mix of internal (to HMRC) and
external facilities management providers for the regional centres, to achieve competitive
prices. HMRC aims to use a range of providers and to include small companies. It will
use the experience it gains in setting up and operating Croydon regional centre to
commission and manage the others effectively and efficiently. It has estimated that
the operating cost of Croydon regional centre for facilities management, rent, service
charges, maintenance, rates, utilities, security, catering and insurance will be up to
£14 million a year.

3.26 HMRC must also consider what its estate needs may be beyond its current
transformation programme, and ensure it builds appropriate flexibility into its contracts
to respond to future changes in service delivery or headcount. In general, longer‑term
leases with break options should be preferable to allow a degree of flexibility should
HMRC make future changes to its business model.

3.27 So far, HMRC has agreed 25 year contracts for its regional centres in Croydon and
Bristol without break clauses, which could tie the department to long term costs should
its future operating model differ from its current plans. HMRC believes its property
strategy addresses the need for flexibility by a balance of lease terms across the estate,
the ability to sublet across government, and by working with the Government Hubs
Programme to facilitate wider government flexibility. HMRC is also considering lease
breaks where this is achievable while retaining value for money. In the case of its Bristol
regional centre, HMRC believes a 25 year lease shows its long-te`rm commitment to
stable jobs in the city and offers the best value for money. HMRC still needs to negotiate
its remaining leases, and it must weigh the lower lease costs of making long-term
commitments against the benefits of retaining the flexibility to allow for future changes
to its business.
40  Appendix One  Managing the HMRC estate

Appendix One

Our audit approach

1 In this report we examined whether HM Revenue & Customs (HMRC) is well
placed to deliver its new estates model, which meets its changing operational needs.
We reviewed:

• whether HMRC has a robust strategic case for moving to regional centres;

• how HMRC has managed the STEPS contract since 2009, including its response
to the recommendations of the National Audit Office and Committee of Public
Accounts, and its preparedness for the contract end in 2021; and

• whether HMRC is dealing effectively with the challenges in implementing its estate
strategy and managing the risks.

2 We focused on HMRC’s strategy and implementation plan for changes to its estate.
We did not examine HMRC’s overall transformation plans, or its approach to reducing
employee numbers and updating staff skills sets.

3 We applied our analytical frameworks for strategic estates management and

analysis of government business cases, to determine value for money.

4 We have summarised our audit approach in Figure 11. We describe our evidence
base in Appendix Two.
 Managing the HMRC estate  Appendix One  41

Figure 11
Our audit approach
The objectives
of HMRC HMRC’s key objectives are to: maximise revenues due and reduce avoidance and evasion; transform tax and payments for
its customers; and design and deliver a professional, efficient and engaged organisation.

HMRC’s objective is to have a future estate that will give staff an adaptable, efficient modern workspace, equipped with
digital infrastructure and training facilities, to encourage greater staff openness and collaboration, and from which it can
better serve its customers.

Its related objectives include reducing its estate costs and using its estate more efficiently, through reducing the overall size
of its estate, the number of staff and the office space per full-time staff equivalent.

How this will

be achieved By 2021, HMRC will close 137 offices spread around the United Kingdom. It intends to accommodate around 95% of its
staff in 13 new large regional centres. It will retain four specialist sites and its headquarters in Parliament Street, London.
HMRC is communicating its estate strategy to its staff, holding one-to-one discussions with staff and offering to redeploy
staff where necessary to different roles in the regional centres.

HMRC is also aiming to support the Government Property Unit’s objective to establish cross-government hubs in England.
It aims to achieve this by matching the cities for regional centres to government hubs.

Our study
We examined whether HMRC is well placed to deliver a new estate model that meets its changing operational needs.

Our evaluative
criteria HMRC has a robust strategic case HMRC has managed the STEPS HMRC is dealing effectively with
for moving to regional centres. contract well and is making the challenges in implementing its
effective preparations for the end of strategy and managing the risks.
the STEPS contract in 2021.

Our evidence
(see Appendix Two
• We used our analytical frameworks for strategic estates management, and analysis of business cases and commercial
capability, to evaluate whether HMRC has a robust strategy to meet its future estate requirements.
for details)
• We interviewed officials at HMRC in the estates programme and in the Building our Future programme, across all parts
of our examination.

• We interviewed officials in HMRC’s customer compliance group on the wider impacts of the estate strategy.

• We interviewed representatives of Mapeley, which operates the STEPS contract for HMRC, to examine HMRC’s
planning, communications and transparency with Mapeley, for its exit from the STEPS contract.

• We analysed HMRC’s estates data to determine the changes in the size and cost of its estate between 2010 and 2015,
and whether it has achieved planned savings over this period.

• We analysed a wide range of documentary evidence, including: HMRC’s annual STEPS value-for-money reports;
Building our Future locations strategic outline business case (November 2015 and September 2016 versions); HMRC’s
financial model for its estate; and outline business cases for the first 10 of the 13 planned regional centres.

• We reviewed the Government Property Unit’s proposals for cross-government hubs in England.

Our conclusions
It is important to see HMRC’s estate strategy in two ways. First as a major programme in its own right, and second,
as a component in HMRC’s wider business transformation. From the standpoint of the estate strategy itself we can
conclude that the handling of HMRC’s STEPS contract has improved, and is more likely to deliver value for money though
significant risks remain. As far as the new programme is concerned, HMRC has already recognised that its original plan
was unrealistic and it is considering how it can adjust the scope and timing of the programme to reduce the cost and
delivery risk. It is, of course, better management practice to recognise cost underestimates early and to consider options
for recovery early as well. However, we think it important for HMRC to step back and consider the benefits afforded by the
wider business transformation, and whether they might be reduced or placed at risk by cutting back on, or delaying, the
estate plans, before going ahead.
42  Appendix Two  Managing the HMRC estate

Appendix Two

Our evidence base

1 Our independent conclusions on whether HM Revenue & Customs (HMRC) is well
placed to deliver a new estate model, which meets its changing operational needs, were
reached following our analysis of evidence collected between July and November 2016.

2 We examined whether HMRC had a robust strategic case for moving to

regional centres. To do this, we examined:

• HMRC’s strategic outline case for its future estate against our strategic estates
management framework, covering:

• vision and strategic planning;

• collating and sharing information;

• addressing financial barriers;

• working together and aligning interests; and

• skills and expertise.

• HMRC’s financial model to generate estimates of the costs of options for regional
centres, including the assumptions made, the external data sources and expert
advice received, and its process for determining locations for regional centres.

• HMRC’s November 2015 strategic outline case for the Building Our Future locations
programme, against the structured review criteria as set out in HM Treasury’s the
Green Book:12

• strategic case;

• economic case;

• commercial case;

• financial case; and

• management case.

12 HM Treasury, The Green Book: Appraisal and evaluation in central government, 2003.
 Managing the HMRC estate  Appendix Two  43

• Whether HMRC’s plans for regional centres align with the Government Property
Unit’s plans for government hubs, including the match between its selected
locations for regional centres and the Government Property Unit’s planned
locations for government hubs.

3 We examined whether HMRC has managed the STEPS contract well and is
making effective preparations for the end of the STEPS contract in 2021. To do
this, we examined HMRC’s responses to previous recommendations by the NAO and
Committee of Public Accounts on its management of the STEPS contract and the
changes it has put in place (Appendix Three).

4 We also examined how HMRC evaluates Mapeley’s performance on the STEPS

contract. This included the criteria against which it scores performance each year,
and trends in Mapeley’s performance against the requirements of the STEPS contract.
We examined HMRC’s actions in response to shortfalls in performance.

5 We reviewed HMRC’s estates directorate’s database on its estate and the data
held on each property. We received and analysed data on the current estate from
HMRC’s estates directorate on:

• costs – total and types of estates costs;

• size – total, by lease type, by usage type, by location, by occupied/vacant,

number of sites, variation in size across offices;

• estate profile and data on the characteristics of properties; and

• space utilisation and efficiency measures.

6 We also received and analysed time series data to examine HMRC’s use of
vacation allowances, estate-related targets and performance against targets:

• trends in key performance indicators (reductions in estate cost and size, reductions
in number of offices, space per full-time equivalent (FTE) staff member, cost per
FTE staff member, cost per m2, reductions in staff and other activity metrics);

• reduction in estate size compared with reduction in HMRC FTE staff numbers
over time; and

• the degree to which HMRC used opportunities in the STEPS contract to vacate
properties without incurring penalties (percentage of allowances to vacate
properties HMRC used).
44  Appendix Two  Managing the HMRC estate

7 We examined HMRC’s preparedness for the expiry of its STEPS estate contract in
2021. We used our framework for commercial capability as a basis for our review. Within
it, we examined:

• the actions HMRC has taken to implement recommendations from the Committee
of Public Accounts in its 2009 report, covering HMRC’s management of the STEPS
contract with Mapeley;

• HMRC’s planning for the exit from the STEPS contract;

• HMRC’s timeline and arrangements for its office closures – this included how
HMRC had identified options, gained an understanding of associated costs and
how to manage these, developed processes to avoid and prevent delays and
tested its readiness;

• the memorandum of understanding between HMRC and Mapeley, and their

understanding, clarity and transparency on HMRC’s early exit plans from property
within its closure programme;

• how HMRC has developed the leadership, governance, management and

commercial and contracting skills and capability necessary for its exit from the
STEPS contract; and

• HMRC’s approach to identifying, managing and mitigating end of contract financial

and performance risks.

8 We examined whether HMRC is dealing effectively with the challenges in

implementing its strategy and managing the risks. To do this, we examined:

• HMRC’s framework for governance and control of the estates programme and the
scrutiny and challenge provided;

• HMRC’s management and commercial and contracting skills and capability for
moving to a new estate model;

• updated forecasts of investment and revenue costs for the regional centres as
estimated in the September 2016 strategic outline case and in the 10 outline
business cases available to us, to understand the pressures on overall affordability
of HMRC’s estates programme;

• the updated forecasts of operational dates for the regional centres; and

• HMRC’s approach to identifying, managing and mitigating the risks in moving to a

new estate model.
 Managing the HMRC estate  Appendix Two  45

9 We also examined the first 10 outline business cases for regional centres which
HMRC had developed at the time of our fieldwork. We examined these against the
structured review criteria:

• strategic case;

• economic case;

• commercial case;

• financial case; and

• management case.

10 We also examined the implications of the estates programme on HMRC

employees. To do this, we examined HMRC’s assessment of the impacts on its
employees. We also reviewed its communications to staff over office closures, the
moves to transitional sites and to new regional centres, and retraining and redeployment
to new work areas. We examined the differing effect of office closures and moves to
regional centres for HMRC staff across the United Kingdom, identifying the regional
variations in distances between offices that will close and the regional centre to which
work and staff will transfer.

11 We examined how HMRC’s customer compliance group was managing the

transition to regional centres. We interviewed customer compliance group managers to
gain their views on the opportunities and risks associated with the transition to regional
centres. This examined:

• maintaining performance and quality of service during the closure of offices and the
relocation to regional centres;

• the changes to how customer compliance would operate based in regional

centres, in ‘Compliance for the future’;

• the communications to customer compliance staff about the office closures and
their scope to transfer to regional centres; and

• managing the risks of loss of staff expertise following the moves to regional centres.

12 We examined HMRC’s plans for managing the new estate and controlling the
revenue costs, including its proposals for a central estates directorate, plans for
facilities management and support services, and approach to managing contracts with
future suppliers.

13 We also examined the Infrastructure and Projects Authority’s September 2016

independent assurance review of HMRC’s estate programme.
46  Appendix Three  Managing the HMRC estate

Appendix Three

HMRC’s response to recommendations by the Committee

of Public Accounts (PAC), 2009

Figure 12
Recommendations by PAC and NAO and HMRC’s actions
Value for money (VFM)
PAC recommendation HMRC’s actions
HRMC should develop cost and value-for-money targets for the HMRC carries out annual VFM assessments of the STEPS contract,
remainder of the contract, measure its performance against these, combining whole life costs and qualitative data.
and reflect the targets in its plan.

NAO recommendations HMRC’s actions

HMRC should monitor the overall cost of the contract against HMRC updates the whole life cost of the contract annually and
initial models. reconciles it with the original model.
HMRC should consider additional opportunities to achieve In 2011, HMRC successfully negotiated a reduction in overhead
value for money. compensation payments of £12 million.
HMRC monitors all gains on sales of vacated STEPS properties.
HMRC appointed property experts to help it identify opportunities
to increase the value of freehold buildings and therefore the share
attributable to HMRC.

Understanding Mapeley’s financial position

PAC recommendation HMRC’s actions
HMRC should understand and keep abreast of changes in Mapeley discloses financial information to HMRC in accordance
Mapeley’s financial position and the Department’s potential with HM Treasury guidance, through a memorandum of
liabilities in the event of Mapeley default. It should maintain an understanding, signed on 26 July 2011, which provides for the
up-to-date business continuity plan. regular sharing of the estates strategy so far as it relates to
STEPS properties.
HMRC should understand and monitor [Mapeley] financial
information, and use it to strengthen its management of the HMRC assesses the STEPS contract against 13 qualitative
contract and negotiations. performance measures every quarter.
HMRC uses a financial model to assess Mapeley’s viability.
NAO recommendations
HMRC discusses these results with Mapeley and agrees action
HMRC should seek full access to Mapeley’s financial information. plans to improve performance.
HMRC should establish ongoing processes to assess HMRC has up-to-date business continuity plans and carries out
Mapeley’s financial position and profitability. work aimed at ensuring continuity in the event of service failure.
HMRC should assess Mapeley’s performance against In 2016, HMRC engaged external advisers to review the financial
qualitative measures. impact of service failure and assist HMRC in contingency planning.
HMRC should seek independent assessment of In 2013, HMRC developed models to calculate the likely costs to
Mapeley’s viability. HMRC in the event of a STEPS failure.
HMRC should assess potential liabilities and risks.
 Managing the HMRC estate  Appendix Three  47

HMRC’s skills
PAC recommendation HMRC’s actions
HMRC should identify the commercial and legal skills it needs to HMRC engaged external advisers to assist in developing the
achieve effective strategic and risk management, strong contract financial model to assess Mapeley’s viability.
administration and good financial management. It should then
HMRC carried out work to bring in the skills necessary for managing
appoint and deploy people with these skills over the remaining
the contract.
life of the contract.

Strategy and partnership with Mapeley

PAC recommendation HMRC’s actions
HMRC must establish an effective partnership with Mapeley, HMRC’s memorandum of understanding with Mapeley gave HMRC
including: using joint board meetings for early and regular dialogue financial transparency and HMRC and Mapeley committed to work
on strategy; sharing strategic aims, and establishing a shared together, including developing a joint estate strategy.
property database.
In 2012, HMRC shared all actual and potential estate changes for
NAO recommendations Spending Review 2010 with Mapeley.

HMRC should develop a joint annual estates strategy HMRC held joint workshops (‘regional centre reviews’) with Mapeley
with Mapeley. between June and August 2016 to review the impact of regional
centres on the STEPS estate.
HMRC should develop a plan up to 2021 that details how it will
make use of the allowances for vacating buildings. By 2011, HMRC had developed closure plans on a building-by-
building basis up to 2014-15. It has used almost all the vacation
allowances available to it under the contract since 2009.
In November 2015, HMRC announced the list of offices it plans to
close up to 2027-28.

Mapeley’s offshore status

PAC recommendation HMRC’s actions
HMRC should take whatever action it can to persuade Mapeley to HMRC did not progress this recommendation.
bring the properties onshore. It should also reach agreement on
HMRC and Mapeley did not agree terms for the inclusion of
including additional buildings in the contract.
additional properties in the contract.
HMRC should track the savings Mapeley actually obtains [from
HMRC did not accept PAC’s recommendation.
being based offshore] and Mapeley should provide full and timely
information to enable the Department to do this. The Department
should seek to recoup any additional benefits Mapeley obtains.

Source: National Audit Office analysis

This report has been printed on Evolution
Digital Satin and contains material sourced
from responsibly managed and sustainable
forests certified in accordance with the FSC
(Forest Stewardship Council).

The wood pulp is totally recyclable and

acid-free. Our printers also have full ISO 14001
environmental accreditation, which ensures
that they have effective procedures in place to
manage waste and practices that may affect
the environment.
 £10.00
ISBN 978-1-78604-094-7

Design and Production by NAO External Relations

DP Ref: 11334-001 9 781786 040947