HMRC has slashed contractor expenditure by £1m annually after abandoning a decades-old outsourcing arrangement, as ministers face mounting pressure to identify £14bn worth of efficiency savings throughout Whitehall.
£1m Annual Savings Achieved in Three Weeks
Whitehall risks failing to meet Labour's £14bn efficiency savings target unless departments cease repeatedly purchasing the same digital expertise from external suppliers, according to a British technology consultancy operating across government.
The alert emerges as City AM reported that HMRC has secured £1m in annual savings following a complete overhaul of a contractor framework that had underpinned crucial Borders and Trade digital services for over three decades. Collaborating with British tech company Tecknuovo, the tax authority substituted more than 100 contractors with a service-based framework supporting eight digital platforms used for the movement of goods entering and leaving the UK.
The transformation was accomplished within three weeks, causing no disruption to operational services and incurring no transition expenses, as reported by City AM. The initiative delivered an 18 per cent reduction in operating costs, producing £1m in yearly savings. Onboarding periods dropped by 86 per cent, while all eight services attained green status for documentation, ensuring vital knowledge was retained within HMRC rather than remaining with individual contractors.
Pressure Mounts for £14bn Efficiency Savings
Meanwhile, Labour has established a £14bn savings target throughout this parliament, while strain on public finances has grown after the Office for National Statistics (ONS) revealed the current budget deficit hit £34.5bn in the opening two months of the financial year – £7bn higher than the corresponding period last year and £6bn beyond the Office for Budget Responsibility (OBR)'s forecast.
Simultaneously, the Public Accounts Committee has cautioned that government cannot precisely track its consultancy expenditure, with estimates spanning from £1.36bn to £2.23bn annually.
Tecknuovo's 'Zero Dependency' Approach
"If ministers want lasting savings, transformation programmes need to leave departments genuinely stronger than they find them and not dependent on buying in contractors again for whatever the next project may be," Katie Carruthers, managing director of Tecknuovo, told City AM.
"The issue isn't external contractors or suppliers. There is of course a place for partnership. The issue is dependency."
Carruthers stated government has spent years purchasing digital expertise rather than developing and maintaining capability within the Civil Service. This can render departments less capable of functioning as "an intelligent client" when acquiring technology, heightening the risk that services aren't procured in the most efficient manner.
"When the knowledge leaves when the contractor ends, departments will find themselves paying to solve that same problem again," she added.
Tecknuovo describes its methodology as "zero dependency", embedding the transfer of skills and ownership into the contract rather than leaving it as a final handover task.
"We think transformation should be measured by what's left behind," said Carruthers. "Knowledge transfer should be a requirement, not an end-of-contract activity."
Risk Mitigation and AI Potential
Under HMRC's former structure, more than 100 contractors supported essential Borders and Trade services, with many able to depart at short notice. Carruthers stated this created "a significant and recognised risk" as vital knowledge resided with individuals rather than the organisation.
"What we built now with HMRC belongs to them," she said. "Their internal teams are able to operate those services independently and use suppliers where it makes sense to bring in additional capacity."
Ministers have consistently promoted AI as a pathway to improved public services and reduced costs, but Carruthers cautioned that implementation without internal capability risks establishing another layer of dependency.
"There is huge potential for AI to help government deliver better services at a lower cost," she said. "But that's only half the challenge. You need the skills, the capability and ultimately the foundational data to make that enablement a success."
She said the same principle applied whether departments are implementing AI, software-as-a-service products or any other emerging technology. Carruthers stopped short of branding the £14bn savings target as unrealistic, but acknowledged it would necessitate departments overhauling how they acquire and maintain digital capability.
"It's a large number – many numbers add up to a large number. But project by project, programme by programme, lowering costs, increasing productivity and building longer-term capability starts to move towards that number."
She added: "Knowledge transfer and bringing knowledge back into departments is part of what will enable government to succeed moving forward."
