IT in firing line as chancellor takes axe to public spending

The government today signalled its intention to slash public sector IT spending in the Comprehensive Spending Review, in a move that will send shock waves through the industry.

Departmental operating savings targets have been doubled to £6 billion, with IT and the back office expected to bear a large part of the cuts. Only two or three areas will see new IT investment, including HM Revenue & Customs, high speed broadband, and a new benefits system.

A day after carving eight percent from the defence budget, but promising £650 million funding for staff and technology to tackle cybercrime, the government announced its plans for the wider public sector.

Some 490,000 civil servants will lose their jobs, as part of aggressive measures designed to save £83 billion. The budget also saw the pensions age raised to 66 by the year 2020, and a substantial change to welfare with a ‘universal benefit’ to be introduced over the next two years at a cost of £2 billion. The overall welfare budget will be reduced by £7 billion

Chancellor George Osborne, as he announced the Spending Review in parliament, also announced £900 million investment for HM Revenue & Customs to make sure it uses IT and processes better to clamp down on tax evasion and tax fraud. HMRC recently rolled out a new PAYE tax system, but the delay to the launch created seven million more unresolved tax cases.

Osborne also demanded an improvement in HMRC’s IT contracts. Resource savings of 15 percent will come from “new technology, greater efficiency and better IT contracts,” he said. Capgemini, which provides IT to HMRC, had not commented at the time of writing.

The science budget will also be protected, and £1 billion allocated to a Green Investment bank aimed at innovation in new environmental technology.

Investment in broadband will be raised to £530 million, with the BBC contributing to the cost of trials in the Highlands, Cumberland and Herefordshire, where Osborne said the telecoms industry would take longer to reach.

The government will continue to assess savings that can be made using open source software, according to a Spending Review document.

Osborne claimed the budgetary cuts across the public sector would rescue the health of the economy, adding: “Today is when Britain steps back from the brink.” He promised to help those in the public sector losing work to find new jobs and added: “Some redundancies are unavoidable when country has run out of money.”

Departments across Whitehall, except for the NHS and the Department for International Development, are slashing their budgets by an average 19 percent, a severe reduction but nevertheless six percent less than previously announced by the coalition.

Local councils will see their budgets slashed 7.1 percent a year for four years, and councils will be expected to use IT to automate services. They are also likely to attempt to move to more shared services and outsourcing.

Individual departments face different levels of cuts, with the Cabinet Office facing 55 percent spending reductions, the Treasury looking at losing a third of its budget, 24 percent from the Foreign and Commonwealth Office, and six percent from the Home Office and Ministry of Justice. Spending on IT projects at the MoJ will be "limited to essential capacity", according to the spending review document.

While the NHS will retain its budget, it will be expected to generate £20 billion savings in four years by “demanding better value from its suppliers”, Osborne said. This could include IT, where an ailing £12.7 billion National Programme for IT retains an uncertain future and is obliged to buy a fixed amount of services from suppliers.

The police will see a 14 percent budget cut, with an emphasis on IT changes to find efficiencies.

Other specific details on IT programmes are unclear, but the government has already slashed several large programmes including the ContactPoint database of children and ID cards, and has made its lead IT suppliers sign agreements promising to cut costs.

Programmes are being re-scoped or delayed, industry analysts have noted, and the government will also ban new IT schemes over £1 million, except when approved centrally. The government has pledged to buy as a single customer across departments, and repeated its aim of introducing more shared services to cut costs.

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Copyright © 2010 IDG Communications, Inc.

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