?1bn extra cost of privatised inland revenue computers

The government has spent £1bn more than it expected upgrading computer systems at the inland revenue to cope with tax changes brought in by the Chancellor, Gordon Brown.

Revenue officials admitted the cost of buying computers and installing systems had doubled to £2bn over the last five years. Most of the increase arises from changes devised by Mr Brown in his first three budgets, including the working families tax credit, the construction industry vouchers scheme and abolition of mortgage tax relief.

The systems are run by US computer services group EDS. Five years ago it won a 10-year contract budgeted to cost £100m per year. The revenue estimated it would save about £225m compared with running the systems itself, but the savings have been dwarfed by the extra work needed to cope with tax changes coupled with upgrades to overcome the millennium computer bug. Costs are likely to continue spiralling following the decision last year to merge the revenue with the contributions agency, which handles national insurance.

Tax officers working in the revenue's main advice centres have told Computer Weekly that new computers have regularly failed, preventing them from dealing with enquiries.

The magazine reveals today that most mistakes result from the decision to roll out an entirely new network of 40,000 PCs using the Microsoft Windows NT in under a year.

It claims senior revenue officials informed the treasury of the risks that systems would fail, but was told to go ahead anyway. The new £200m system, known as i2k, was due to be rolled out last year but was not started until January. Delays were blamed on the new tax self-assessment scheme.

The Public and Commercial Services union, which represents most of the 50,000 revenue staff, confirmed that representatives were almost certain to call for the termination of the contract with EDS at its annual conference next month. The union said the number of problems had declined but its members were angry at the lack of support provided by the revenue and EDS and that glitches were expected to continue next year.

A spokeswoman for the treasury said it was clear many changes had taken place since the contract with EDS started five years ago, "but despite this the system has performed extremely well". She added: "It has also delivered economic benefits to the country."