Q91 Geraldine Smith: In hindsight, would you do that again?
Ms Strathie: Again I have to dwell more on my own experience here. This is not our core business and generally speaking you get better value, better flexibility, able to do things more quickly in doing it this way. I cannot judge, with all of the things the Department has been through since the contract, how much it could have done sooner, but I do know that it enabled the merger in the first instance, the creation of HMRC, and the pace at which that Department was created would have been much more difficult if we had not had this contract.
Q92 Geraldine Smith: So basically you feel the contract was a good thing but you did not have people with the legal skills and the commercial knowledge to negotiate a better contract.
Ms Strathie: Yes and I also think the contract was signed and I can only assume that it enabled the things that it enabled because we were all living in a time where we could see that lots of jobs were going to be replaced by technology and that is always a real challenge for any leader in the scale of change. You could have assumed that you were going to need far fewer buildings because of the merger dividend. Lots of assumptions were made but the reality is that a lot of other things have been asked of HMRC in the meantime.
Q93 Geraldine Smith: May I ask one question on page 14 where it mentions windfall gain? Mr Friedlos, apparently the Department has not received a certificate from Mapeley confirming that it was not eligible to share in windfall gains. Can you tell me a bit about that and why the Department has not received a certificate?
Mr Friedlos: The windfall gain was looked at at the time it was required to be in the contract and it was concluded and agreed with the Department that no gain was payable. At the same time as that was going on, there was also a refinancing of the bank arrangements around the STEPS contract which was taking place which actually relied on largely the same information and under which we did agree to make a payment to the Department. That was duly done and the matter was considered concluded in respect of both items. I understand the Department would now like the certificate which is effectively for a nil return, but they would like it. We are planning to provide that to them as soon as possible.
Q94 Geraldine Smith: Going back to the staffing, what is going to happen after 2012 with the buildings? What is the situation?
Ms Strathie: We have a total of 258 buildings which we consulted on and which have a future of different times and the 130 are the ones which we nailed down as ceasing business that year. We then have outline views of the next two years but they have to be taken in line with our workforce and my budget because obviously the cost of exiting people from the organisation is something we have to factor in. We are clear for this and we are clear for funding for those staff who cannot take advantage of any other vacancies and who take the exit terms, which are the most generous available under the civil service rules, before we can bring greater detail for the following years.
Q95 Geraldine Smith: Do you accept the recommendations of this Report? I think it is the future which is important and how you work within this contract.
Ms Strathie: Yes; absolutely.
Q96 Mr Davidson: Is there any advantage to HMRC of Mapeley being offshore?
Mr Hartnett: The only one I can think of is the one that was picked up in the last NAO Report in that the best estimate is that Mapeley were able to bid £55 million low because £55 million of capital gains tax would not be paid because they were offshore.
Q97 Mr Davidson: Apart from dodging the tax, is there any other gain in operational terms to HMRC of you being based in Bermuda?
Mr Friedlos: No, there is not; it is a very widely used structure in the industry.
Q98 Mr Davidson: So presumably the only gain in this whole thing to the British Government of you being offshore is that because you dodge tax you are able to quote a lower price.
Mr Friedlos: We passed the tax benefit back as a lower price in assembling our bid.
Q99 Mr Davidson: May I ask the NAO whether or not there is any evidence that the benefit of dodging the tax has been reflected in the lower price?
Ms Wheeler: The figure of £55 million which was quoted as an estimate had been reflected in the bid. Within our Report we did actually try to get an assessment about what the tax benefit had been so far and I believe the figure was £2 to £3 million. However, that is on the basis that much of the tax benefit would come towards the latter end of the contract on that £55 million.
Q100 Mr Davidson: Because I do not understand all of this, could we ask for a note from you about the extent to which firstly there was a benefit to the Government as a result of it being offshore and, secondly, whether or not the company have played fair in terms of giving the price back.
Mr Morse: May I define it like this and see whether this is helpful? If we have full access to Mapeley's costs and their financial details then we can work out what tax advantages they have obtained from being offshore. Only if we know that can we know whether it is being shared back with HMRC.