Departmental Investment Strategy
The department's overall aim is to administer the tax system fairly and efficiently and make it as easy as possible for individuals and businesses to understand and comply with their obligations and receive their tax credit and other entitlements. (Inland Revenue Public Service Agreement)
The purpose of this document is to:
- Set out the department's investment strategy, and how this supports the delivery of it's aims, for the three years 2001-04
- Demonstrate how assets are being utilised
- Say where new investment is being directed, and why
- Show how value for money will be ensured
Increasing taxpayer numbers: the number of taxpayers' cases that the department is supporting is forecast to increase by 2.1m/2.5m/2.9m (an increase of 5.2%/6.2%/7.2%) against the 1998 planning baseline. In addition, collection activity is increasing by over 50%. In order to estimate workloads it is necessary to determine the number of taxpayer "cases." Some taxpayers fall into more than one category (i.e. when they file their Self-Assessment return and when they pay their final agreed tax liability). For this reason, the aggregate number of taxpayer "cases" is always greater than the number of taxpaying individuals. Any increases in workload volumes have a substantial impact on departmental resources.
The Government is committed to making public services available 24 hours a day, seven days a week, where there is demand. In line with other Government Departments, we are committed to making 50% of services available electronically by 2002 and 100% by 2005. Detailed plans to 2001 are in place, and a longer-term strategy is being developed in conjunction with the Cabinet Office.
New electronic audit methods are being developed to address problems associated with security and integrity and provide an acceptable level of assurance while handling data of increasing volume and complexity. Staff within the Department will need to acquire and develop new skills to audit and test these systems. We are continuing to monitor developments, both domestically and internationally, with our international partners.
Wider use of tax system: the department is increasingly playing a wider role - being involved in a range of activities that are not specifically related to tax assessment/collection. For example:
- collection of Student loans on behalf of DfEE
- administration of National Minimum Wage compliance on behalf of DTI
- contributing to the Welfare Reform agenda through administration of Working Families' Tax Credit
Current year spending (Baseline)
During the past 2 years the main focus of the department's capital spending has been on bringing its IT infrastructure up to the standard necessary to provide the right levels of technological support which it is essential to delivering best customer service. Implicit in the baseline is the need to keep our IT infrastructure up-to-date, if we are to meet the challenges ahead. We therefore have a rolling replacement programme which ensures that no desk top IT is more than 3 years old.
We also have several major in-house IT systems (e.g. for dealing with
Self-Assessment) and periodically these require investment in order to
maintain them at optimum operational level. Much of the IT investment
is through a PFI/PPP arrangement that brings the benefit of private sector
management skills and delivers risk transfer. Effectively this means that
we are purchasing a service and not directly investing in capital.
In April 1999 the former Contributions Agency (CA) merged with Inland Revenue (IR). In many cases ex-CA staff need to be co-located with IR staff and this will generate new accommodation needs. At the same time, our internal reorganisation into business streams is generating additional accommodation requirements.
Our investment strategy will enable us to:
- Create call/contact centres (Public Service Agreement outcome 1)
- Deliver new policy initiatives within challenging timescales (Public Service Agreement outcome 1)
- Improve customer service and reduce the burden on business (Public Service Agreement outcome 2)
- Develop our e-business capability in line with Government targets (Public Service Agreement outcome 3)
- Ensure that operational systems can respond to increasing taxpayer volumes and changing demands (e.g. e-business), whilst still supporting current customers (Public Service Agreement outcome 4)
- Operate effectively and efficiently (Public Service Agreement outcome 4)
Table 1 sets out the main capital investments that underpin the department's overall aim.
Table 1: gross capital expenditure by category (£000's)
|Objective breakdown||Base line||2001-02||2002-03||2003-04|
|1. Rolling replacement of IT equipment||30||30||30||30|
|2. Refresh/renew essential in-house software||4||14||4||18|
|3. Reorganise and rationalise accommodation (including ex-DSS offices)||15||15||15||15|
|4. Create contact centres||10||5||11|
|5. Continue to develop e-business, including paperless office and links to banking systems||10||3||9|
|6. Rolling replacement of cars and furniture||10||10||10||10|
|7. New policy delivery (changes and enhancements to IT Systems)||10||29||0|
|8. Other small project spend||3||3||3||3|
Changes to baseline over the period to 2003/04
We will be implementing major new policy initiatives during this period including the introduction of Integrated Child Credit and Employment Tax Credit.
Our e-business programme will enable the public to deal with us electronically in many instances, and will help us provide services via one-stop shops in conjunction with other Government Departments. As well as providing better customer service, this will help reduce compliance costs for businesses and deliver value for money improvements in the administration of the system.
During this period we will also be investing in new call/contact centres to handle telephone and growing e-business exchanges, which will take advantage of the lower staff costs achieved through new working practices. This should result in coverage of 50% of the population by March 2002; the remainder being covered by the roll-out of a PAYE centre in 02/03 and a self employed centre in 03/04.
Electronic contact with small businesses will be developed in conjunction with the Small Business service of the DTI who have been designated the cross-government service provider in this field.
A major factor in determining the IT investment strategy over the period to 2005 is the need to re-compete the department's IT services contracts (currently with Electronic Data Systems - EDS - and Accenture), both of which expire in 2004. These events are at a key stage in the development of our e-business strategy, call/contact centre development, and the introduction of Integrated Child Credit.
Scale Of The Capital Base
Table 2: The scale of the capital assets base and the assets involved in delivery: 1999-00
|Assets at Net Book Value (£m)||1999-00|
|Land & Buildings||286.6|
|Office & Computer equipment||184.3|
Condition of assets used in delivery
Land & buildings: The department is in negotiations with a private sector consortium for the provision of fully serviced office accommodation, from 1 April 2001, under a PFI deal. Generally the existing buildings are being transferred to the new provider in a good state of repair. Once the contract commences, maintenance and normal refurbishment of the properties will be the responsibility of the consortium, subject to terms and conditions of the contract. Responsibility for new work required by the department in these properties, e.g. conversion to open plan, will be the department's responsibility. The contract is a joint procurement with Customs & Excise and is called STEPS (Strategic Transfer of the Estate to the Private Sector).
The new arrangements provide the department with significant flexibility for the space that it occupies. The contract allows for up to 60% of the existing space to be vacated over the next 20 years, without cost. This level of flexibility is central to the strategy of being able to respond to the changing demands from developments such as e-government.
Office & computer equipment: Virtually the entire IT estate was replaced during 1999 to ensure that the department did not suffer any Year 2000 problems, and to provide the new technology platform that will enable IR to deliver its Modernisation Programme. The close inter-relationship between desktop IT and wider telecommunications equipment means that we have also kept the latter up-to-date, to ensure compatibility and ease of data transfer.
The bulk of our computer and office equipment is therefore no more than 18 months old and in good condition. It is widely dispersed around the department - in general every member of staff in each office has access to a desktop computer. Each desktop provides access to a large number of individual systems, as appropriate to the duties and responsibilities of individual members of staff. Computer equipment is replaced/refreshed on a rolling 3-year cycle.
Vehicles have a specific replacement/renewal cycle which is covered in the Asset Disposal section below. Resale value is highly dependent on the vehicles being maintained to a good standard.
Furniture is replaced on a rolling 10-year basis unless - exceptionally - particular items have failed to meet our normal expected lifespans. But in the Ex-Contributions Agency offices, both furniture and desktop computer equipment do not meet normal IR standards/lifespans, and our investment plans include specific replacement/upgrade programmes for these areas, over the SR2000 period.
Capital Modernisation Fund (CMF)
We will continue to consider bidding for funds from this source as an option for the future, in those cases where we can show that public service delivery could be improved by an injection of funds over and above the department's baseline. We have successfully bid for CMF funds in the current year, and are now working with other departments on an innovative cross-cutting project.
Resource Accounting and Budgeting
The move to resource budgeting ensures that the annual cost of retaining assets is reflected within the department's resource budget, not just the purchase price. The budget therefore includes an amount for the opportunity cost of holding that capital and not investing elsewhere (the cost of capital charge) and a charge for the amount of capital consumed in that particular year (depreciation) as follows:
Table 3: Resource budgeting consequences
|Existing capital charge|
|Total cost of capital||27.8||2.5||4||5|
|Total cost of depreciation||108.6||10.5||20||22|
|Total of capital charges||136.4||13||24||27|
The department has a Wider Markets Officer who is responsible for exploring the potential maximisation of departmental assets, in conjunction with the private sector as appropriate. There are already arrangements in place within the contract with EDS for the department to benefit from any third party use of the assets used by EDS to provide IR services. Further negotiations are underway with EDS to establish the potential market for the Windows NT rollout methodology developed jointly by IR and EDS. We are also exploring a number of lower profile initiatives such as charging other organisations for use of our conference/training facilities.
A key component of the Wider Markets initiative is the concept of making those assets that departments decide they must retain "sweat"' i.e. that the assets are used to their maximum capacity. The work that we are doing on behalf of other departments (e.g. collection of student loans; enforcement of National Minimum Wage; collection of oil and gas royalties) is a good example of this; the assets we utilise in carrying out these activities are primarily supporting core IR activities but there is some elasticity in them which is being used to maximise their potential.
Our asset base is relatively small by comparison with other large departments, because:
- we made early use of PFI as a means of providing some new office accommodation
- the STEPS PFI project will transfer the bulk of the remaining estate to the private sector
- with the exception of desktop computer equipment, all of our IT assets were sold to EDS at the beginning of our strategic partnership in 1994
Although we make substantial investments in IT, because of our contracts with EDS and Accenture significant parts of the overall spend are treated as current expenditure and are not capitalised.
Our remaining assets fall into four broad categories:
- desktop computers and in-house software
- telephony equipment, furniture
We have a planned refreshment programme for our desktop computers which is structured around their expected useful lives, which means that we only buy sufficient numbers to satisfy known/anticipated needs, and we only dispose of equipment that has reached the end of its economic life. This normally means that these items have a nil (or very low) book value.
Most of our telephony equipment is to support contact centres/Helplines and is often closely aligned to the desktop computers used to help staff run these operations. Our acquisition and disposal policies for these items are generally in line with those for the desktop equipment.
Our current policy on furniture is that we expect it to last for 10 years and replacement is not normally considered unless this lifespan has been achieved. We have a planned refreshment cycle structured around this expected life and a small ongoing spend each year helps us maintain this approach.
Our car replacement programme has two separate elements: pool cars and Private User vehicles. Cars purchased under the first category have an expected lifecycle of 36 months or 60,000 miles, whichever is the sooner. Previous years' information indicates that this is the optimum retention period which minimises repair/maintenance costs whilst providing for the best trade-in price for replacements. A similar policy is adopted for Private User vehicles, but the retention period is 25 months, reflecting the different nature of the vehicles and the terms and conditions applying to their use.
After STEPS, we will have very little left on our accommodation estate but we do have plans (e.g. for call/contact centres) which may mean that we need to acquire some further accommodation which would form part of our asset base, at least in the short to medium term. But our long-term aim would be to dispose of this, either to the STEPS contractor, to another private sector partner, or by straight sale to any interested sector.
The Strategic Policy Objectives section and the supporting detail in Table 1 show the main areas of planned new investment by IR, and explain how these support our Departmental Objective.
Total Gross Capital Investment
Table 4: new investment plans by function/activity: 2001-02 to 2003-04
|Departmental Capital Budget (£k)||Function/activity||2001-02||2002-03||2003-04|
|Create call/contact centres||Roll out centres for 50% of the customer base by 31/3/02, followed by a PAYE centre in O2/03 and one for the self employed in 02/03 (Public Service Agreement Outcome 1)||10||5||11|
|New policy delivery (changes and enhancements to IT Systems||Deliver policies and ensure high level of understanding and response. Public Service Agreement Outcome 1)||10||29||0|
|Continue to develop e-business, including paperless office and links to banking systems||Achieve 100% availability of e-communications by 2005 (Public Service Agreement Outcome 3)||10||3||9|
|Reorganise and rationalise accommodation (including ex-DSS offices)||Customer focussed reorganisation of work to create a structure that can accommodate changes without disrupting business activities, to improve the way we use resources and improve customer service (Public Service Agreement Outcome 4)||15||15||15|
|Rolling replacement of IT equipment||Ensure alignment of IT systems within the enlarged IR (including DSS) thus ensuring efficient, accurate and timely service delivery to individuals and businesses (Public Service Agreement Outcome 4)||30||30||30|
|Refresh/renew essential in-house software||Ensure that operational systems remain able to respond to increasing taxpayer volumes, and changing demands (e.g. e-business) (Public Service Agreement Outcome 4)||14||4||18|
|Replacement of cars and furniture||Replace assets at the end of their useful economic life to ensure department is capable of efficiently carrying out its business (Public Service Agreement Outcome 4)||10||10||10|
|Other small project spend||Ensure department meets its objectives (Public Service Agreement Outcome 4)||3||3||3|
|VOA||Reduce burdens and costs to taxpayers (Public Service Agreement Outcome 2)||6||6||6|
Public Private Partnerships
The department's asset base will reduce significantly compared with 1999/00, principally because of the major PFI contract which, jointly with HM Customs & Excise, will transfer almost all of its estate to the private sector, in exchange for serviced accommodation for a period up to 20 years.
In 1999/00 the department took over (from the former Contribution Agency) responsibility for the NIRS2 contract with Accenture, which is a PPP/PFI deal. It also took over the PFI scheme at Longbenton in Newcastle (NED).
Additionally IR has a strategic partnership with EDS which has many PPP elements to it. EDS invests in core IT systems on the department's behalf as part of the service it provides. The overall effect of these various initiatives has been to reduce capital expenditure, which now represents 2% of gross expenditure, compared to 5.6% 5 years ago.
With the transfer of our estate, and the earlier disposal of our IT assets to EDS, the main category of assets remaining is desktop equipment. We will be reviewing the potential for a PFI-type deal to maintain/refresh this equipment. Over the longer term, the EDS contract is due for re-tendering in 2004-05 and there may be opportunities for rolling-up the desktop equipment into any new contract, possibly on PFI lines.
Links to Outputs: with the exception of the NIRS2 scheme, all of the other PFI deals are accommodation projects and the schemes support all of the lower-level aims and outcomes within our overall Objective. NIRS2 is an IT system and the specific output link here is to help individuals understand their obligations and pay their contributions to Government funding, and receive what they are entitled to.
As set out under the Strategic Policy Objectives, our investment strategy recognises the need for continuous technology improvement/refreshment, particularly if we are to meet the challenges of electronic government. We are already working closely with the Cabinet Office on development of an IT infrastructure potentially capable of being rolled-out across government, and we launch the initial phases of filing tax returns via the Internet in 2000/01.
National Asset Register
Full details of the department's assets will be published in the forthcoming update of the National Asset Register.
Maintenance and Improvements to Existing Assets
We have little in the way of maintenance backlogs because many of the types of assets where this would be a potential concern are no longer our responsibility (having been transferred to the private sector). But our Modernisation Programme would be severely undermined if are unable to maintain our supporting technology in line with latest developments.
Appraisal and Evaluation
We believe that we have very effective mechanisms for ensuring that all of capital spending is directly linked to our Departmental objective, and can be translated into specific outcomes. See diagram 1.
Our investment strategy forms an integral part of our overall business direction, and we are satisfied that we have robust processes in place to ensure that we only invest in assets that will support that direction, and our underpinning Modernisation Programme.
We have a well-established approach that projectises any significant spending plans that have clearly defined start/end-dates and deliverables. Such projects are then subject to our Departmental Project Management Methodology (DPMM) which is based on CCTA's PRINCE2 methodology. Our DPMM brings a systematic and structured approach to project planning, approval and control.
There is a structured approval hierarchy geared to bring increasingly more rigorous appraisal techniques to bear based on the gross lifecycle costs of the project. Three key features of the appraisal/approval process at all levels are: fit with business direction, value for money, and affordability.
The majority of the department's projects form part of the overall Modernisation Programme and delivery is handled day-to-day by a small group of senior managers - the Modernisation Programme Management Team (MPMT), acting on behalf of the Board. MPMT's main role is to ensure that potentially conflicting elements are identified and resolved, and to see that all of the elements remain on track for delivery within the specified parameters (cost, time, quality).
There are 3 levels of approval and the two highest levels are: the Board, and the Departmental Project Investment Committee (DPIC). DPIC is the approval authority for projects with a lifecycle cost not exceeding £m50; the Board is the approval authority for projects over £m50 and not exceeding £m100.
The Investment Appraisal Unit of our Finance Division is a key part of the approval process and they require an economic appraisal (including Discounted Cash Flow statement) and an assessment of affordability before a project proposal is permitted to go forward to the relevant approval authority. Similarly our Strategy & Planning Division will assess the project for its fit with business direction before letting it go forward. Both of these assessments are given to the relevant Divisional Directors, who play a significant role in the relevant approval bodies.
PFI v public investment
An assessment of the opportunities for PFI within new project proposals
is carried out by our Investment Appraisal Unit, which also exercises
the Public Private Partnership function (including Wider Markets Officer).
We are satisfied that this structure ensures proper consideration of the
private sector's potential role.
Programme and Project management
We have a strong track record of delivering programmes and projects within budget, on time, and meeting quality standards. For example, our recent desktop computer refresh is the largest single project of this type undertaken in Europe. Expected costs and benefits are a key part of the business case and the project/programme must have explicit plans for measuring these. We employ a two-stage process for checking that projects/programmes have met their aims:
- Stage 1 is a Project Evaluation Review (PER), which is primarily an examination of the conduct of the project itself
- Stage 2 is a Post Implementation Review (PIR) which reviews the extent to which the project has delivered its aims & objectives, outturn against budget, delivery of savings etc
All business cases seeking approval for projects must include a high-level implementation plan. This is supported by lower-level plans, including contingency planning.
Programme and Project management and monitoring
We place great emphasis on project ownership and every project/programme must have a nominated sponsor who is responsible for championing the project. There will also be a project board consisting of the project sponsor, project manager and key stakeholders who will meet regularly to monitor progress and authorise corrective action where this is required in order to bring the project back into line.
We have recently introduced a simpler but more robust risk assessment and monitoring system. Early indications are that this is proving to be very effective in managing risk. All business cases must include an assessment of risks, using this methodology.
The evaluation processes are described above (under project/programme management). There is a dedicated group which considers the outcomes of both PERs and PIRs, and which is responsible for promulgating best practice, identifying shortcomings and ensuring that lessons learned are made available to other project managers, sponsors etc.
All new projects involving a capital spend must produce a full business case including an appraisal of alternative options, fully costed in accordance with "the Green Book" guidelines. The move to resource budgeting means that the scoring of capital charges - which show the annual cost of holding an asset, not just the initial cash purchase price - provides a continuing incentive to use assets effectively.
The Valuation Office Agency has it own Vote for administration expenditure including capital. Its investment strategy supports the delivery of valuation services.
- for rates, council tax and other taxes which maintain fairness and reduce burdens and costs to ratepayers
- in support of more effective and efficient use of property where the public interest is involved
The priorities within the strategy are to deliver systems for:
- handling rating and council tax processes electronically, to provide quicker and more accessible customer services for businesses and individuals; better interfaces with billing authorities; and lower overall costs for both public and private sectors
- faster, better quality valuations
- supporting a public sector wide property database through the National Land Information System (NLIS), and generally providing more accessible information for the public and other users
Investment plans are targeted and prioritised by the Agency's Management Board, supported by a programme board, and are directed to the modernisation programme set out in the Agency's Forward Plan (2000 edition). The Management Board is the approving authority for all projects save for those with lifecycle costs not exceeding £m5 delegated to the programme board.
The Agency operates on a full cost recovery basis, charging its various clients for the services it provides, so its investment plans and priorities need to be explicitly agreed with those clients. In this context, a new Agency Advisory Board - including the Agency's major clients as key stakeholders - has been set up following the second Review of the Agency, to develop the Agency's strategies and to promote closer liaison between clients and the Agency on funding.
The Agency will be launching a new programme to lead the modernisation of the rating system which will be the main element in its broader contribution to renewal and innovation in public service delivery.Conclusion
The main focus of the Department's capital spending has been on bringing its IT infrastructure up to standards necessary to provide technical support which delivers high standards of customer service and value for money, whilst utilising resources in the most efficient way.
Our Investment Strategy recognises the need for continuous technological improvement/refreshment particularly in order to meet the challenges ahead. Mechanisms are in place to ensure that all of our capital spending is directly linked to Departmental objectives which can be translated into specific outcomes that produce positive results.