HMRC had planned to shut 170 offices and replace them with 13 large regional centres, four specialist sites and a London headquarters
HM Revenue and Customs has been forced to carry out a fundamental rethink of plans to close dozens of local tax offices while centralising operations on a few regional centres, the Whitehall spending watchdog has disclosed.
The National Audit Office (NAO) said HMRC had concluded its original proposals, which involved shutting 170 offices and replacing them with 13 large regional centres supplemented by four specialist sites and a London headquarters, had proved "unrealistic".
The plan was intended to save tens of millions of pounds for the taxpayer while improving efficiency and working conditions for staff.
However, the NAO said HMRC had underestimated the scale of the disruption involved, with up to 5,000 staff expected to leave as a result of the proposed move, while it had been unable to find suitable properties in some of its chosen locations.
"During the transition to regional centres, HMRC must ensure that its service to taxpayers and its ability to collect tax revenue are not impaired," the NAO said.
"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."
The NAO said since HMRC first presented its business case for the plan in 2015, the estimate of its estate costs over the next 10 years had risen by nearly £600 million - 22% - with more than half the increase due to higher than expected running costs for its new buildings.
Cumulative efficiency savings were now expected to reach £212 million by 2025-26 - less than half the £499 million previously forecast.
The problems were exacerbated by a private finance initiative (PFI) agreement with contractor Mapeley, which meant that it faced rising rental and service costs if the move was not completed by 2021.
The NAO said HMRC was now reconsidering the scope and timing of the move to reduce the costs and the risks of disruption.
Options include changing the timetable for opening regional centres, re-considering the location and size of some of the centres, and re-assessing how and when to introduce flexible working practices.
The head of the NAO, Sir Amyas Morse, said: "HMRC should step back and consider whether this strategy still best supports its wider business transformation and will deliver the sustainable cost savings it set out to achieve in the long run."
Mark Serwotka, the general secretary of the PCS public service union, said it was now "imperative" the plans were halted to give Parliament and the public a chance to have their say.
"Cutting thousands of HMRC staff in recent years has hit the services it provides to the public, yet the department and this Tory Government are ploughing ahead with poorly thought through plans that would mean thousands more job cuts," he said.
An HMRC spokesman said: "HMRC's employees are currently spread across 159 offices around the country, many of which are a legacy of the 1960s and 1970s, ranging in size from around 6,000 people to fewer than 10.
"Our 13 new regional centres are an essential part of our work to modernise HMRC and provide an even better service for our customers, while delivering annual savings to the taxpayer of over £80 million from 2025/26. It also means modern offices for our staff, with the latest technology, better collaboration between teams, local training and wider career opportunities."
The spokesman said that the NAO was " not comparing like for like" on costs.
"Not only has the property market shifted over the course of the past year, but our most recent calculations now include updated day-to-day running costs and additional investment in two transitional sites which will ease the move for both staff and customers," he said.
Shadow Treasury minister Rebecca Long-Bailey said: '' Despite issues such as the Panama Papers dominating the headlines in 2016 it is clear that the Government has failed to provide HMRC with the necessary resources to tackle tax avoidance. What is even more worrying is that today's report states that HMRC has yet to define fully how its plans will support better customer service and more efficient and effective compliance activities.
"This is not a Government that is serious about tackling tax avoidance nor is it one who makes the tax payment system easy to navigate for businesses and individuals."