HMRC has slashed contractor expenditure by £1m annually after ditching a decades-old outsourcing arrangement, as ministers face mounting pressure to identify £14bn worth of efficiency savings throughout Whitehall. Whitehall risks falling short of Labour’s £14bn efficiency savings objective unless departments cease repeatedly purchasing identical digital expertise from external suppliers, according to a British technology consultancy operating across government.

The caution emerges as City AM reported that HMRC has secured £1m yearly savings following an overhaul of a contractor framework that had underpinned vital 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 approach supporting eight digital platforms utilised in the movement of goods entering and leaving the UK.

The changeover was accomplished within three weeks, causing zero disruption to operational services and incurring no transition expense, as reported by City AM. The initiative delivered an 18 per cent decrease in running costs, yielding £1m in yearly savings. Onboarding times fell by 86 per cent, while all eight services attained green status for documentation, ensuring essential knowledge was retained within HMRC rather than remaining with individual contractors.

Meanwhile, Labour has established a target of £14bn in savings throughout this parliament, while pressure on the public finances has mounted 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 equivalent period last year and £6bn beyond the Office for Budget Responsibility (OBR)’s projection.

Simultaneously, the Public Accounts Committee has cautioned that government cannot precisely account for its consultancy expenditure, with estimates spanning from £1.36bn to £2.23bn annually.

“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 instead of 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 are not 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.

Knowledge transfer Tecknuovo describes its methodology as “zero dependency”, embedding the transfer of skills and ownership into the contract itself rather than leaving it as a final-stage consideration.

“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.”

Previously, HMRC’s structure relied on more than 100 contractors supporting crucial Borders and Trade services, with many permitted to depart at short notice. Carruthers stated this generated “a significant and recognised risk” as vital knowledge resided with individuals rather than being institutionally held.

“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.”

Government ministers have consistently positioned AI as a pathway to improved public services and reduced expenditure, yet Carruthers cautioned that implementing it without internal expertise risks establishing fresh dependencies.

“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 noted the identical principle holds true regardless of whether departments are implementing AI, software-as-a-service solutions or other emerging technologies. Carruthers refrained from describing the £14bn savings objective as unachievable, but indicated it would necessitate departments transforming their approach to purchasing and maintaining 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.”