Tax payer still owed millions by EDS

MPs have called on the government to take legal action against outsourcing giant EDS to recoup the millions of pounds the company still owes over the tax credits IT fiasco.

silicon.com Public Sector

Get the latest public sector news straight to your inbox. Sign up for the PS newsletter today!

In a settlement EDS agreed to pay £71.25m to Her Majesty's Revenue & Customs (HMRC) over problems with the tax credit computer system it designed.

Difficulties with the scheme resulted in HMRC overpaying £6bn in tax credits during the three years after its introduction in 2003.

EDS agreed it would pay £26.5m of the settlement when it was awarded new contracts by the government but a report by the parliamentary spending watchdog the Public Accounts Committee (PAC) has found the IT services company has repaid "little" of this sum - because the government has awarded EDS less work than expected.

Chairman of the PAC Edward Leigh MP warned that "HMRC must be prepared to return to the courts" to recoup the full amount from EDS if it is not repaid by the end of 2008.

HMRC chairman Paul Gray - who has since resigned over the loss by his department of two CDs containing 25 million child benefit records - told the PAC hearing the department would return to litigation if necessary.

The PAC report says the tax credit system continues to suffer the "highest rate of error and fraud in central government", with about £1bn of tax credits still being lost to fraud and error each year.

HMRC admitted to PAC the computer system, now looked after by Capgemini, remains "fragile", making it difficult to improve tax credit processing - with software errors still affecting some payments.

Richard Bacon MP, a member of PAC, said it would take EDS 106 years to repay the settlement at the current rate.

Bacon told silicon.com: "The vast majority of the £26.5m has not been repaid. The monies are still owed to the taxpayer, it is quite obvious that this settlement is not working. The computer system was launched before it was ready and the government has been playing catch up ever since. It is like designing a runabout car for going shopping and then using it for a Sahara rally."

In a statement PAC chairman Leigh said: "The tax credits situation is as serious as ever. HMRC's attempts to bring the system under any measure of control have so far not been crowned with conspicuous success. The amount of tax credit being lost to fraud and error is still running at some £1bn each year."

Leigh said the committee will review this again in future to see how the problems with the tax credit system have been addressed by the HMRC.

A spokeswoman for EDS said the company has not breached the terms of its settlement agreement - which linked repayments to new business EDS wins with the government.

She said: "HMRC and EDS successfully concluded an aggregate settlement of £71.25m, including an upfront payment and payments of additional amounts over time. The payment of additional amounts was contingent upon certain, specific criteria being met. The settlement was negotiated in good faith with HMRC and is consistent with EDS' assessment of the merits of HMRC's case. EDS remains fully compliant with the terms of this settlement. We continue to maintain a dialogue with HMRC."

A spokeswoman for HMRC said: "This report relies on data captured only up to 2006. As a result of a series of improvements, overpayments have fallen by a fifth and accuracy in processing payments has reached 97 per cent. HMRC's security measures stopped the vast majority of fraudulent claims before any money was paid out."

She said that major changes to the tax credit system were expected to reduce overpayments by a further third.