Complete this sentence to win a prize for your technology insight: “2018 will be the year of…”
Rather like the missing word round in Have I Got News For You, the answers will range from the obvious to the hilarious – AI! Blockchain! Internet of things! Voice recognition! Driverless cars! Virtual reality! Go on, add another few dozen well-used industry buzzwords. Do a Google search, you’ll find someone has written every article already.
We can pretty much guarantee that 2018 will not be the year of anything in particular, other than the usual onward march of technology adoption and the further infiltration of the digital revolution into every aspect of our life and work – and the backlash against both.
Not wishing to be left out, here are five things that are likely to be much discussed this year – not an exhaustive list, but we reckon these will come across the desktop of most IT leaders in 2018.
Let’s get the easy one out of the way. You have until 25 May 2018 to become compliant with the EU’s General Data Protection Regulation (GDPR), which will be implemented in the UK through the new Data Protection Bill. At Computer Weekly, we’ve already written each week’s story from now to May about how many organisations have yet to comply. Data protection isn’t going away – even if we’re still trying to understand where to draw the boundaries. The real fun starts when the first household-name company gets sued for a GDPR breach.
Whether it’s about social media, online age verification, artificial intelligence, data privacy or the working practices and lack of diversity of the tech sector, ethics is going to underpin much of the existential debate around the future of our digital society. Take it seriously – choose to be an ethical digital organisation. One day, people will look back and despair at how long it took for tech to make ethics a priority.
There’s a growing acknowledgement that the core of the UK’s productivity gap with our international counterparts comes down to a lack of IT investment by corporations since the 2008 crash. CBI research gave us a wonderful soundbite last year – that UK take-up of enterprise resource planning (ERP) and customer relationship management (CRM) is lower than it was in Denmark in 2009. If we want the UK to compete internationally post-Brexit; if we want to get wages growing again; if we want to create more high-value jobs – then the government needs to find a way to persuade companies to increase how much they spend on new technology.
Identity is perhaps the biggest challenge of the digital economy. How can we prove we are who we say we are to organisations we may never meet or physically transact with outside the virtual world? Getting digital identity right is the key to unlocking so many online opportunities, from public service delivery to open banking. The government has tried to crack this with Gov.uk Verify, but has gone down a dead-end and needs to find a way out. Better public/private co-operation is likely to be the answer – and it needs to happen this year.
OK, we had to use a proper tech buzzword somewhere. Serverless computing is the natural evolution of virtualisation, cloud and agile development – the next step to a true pay-as-you-go utility model for computer power. This year, expect to see early adopters getting seriously into serverless, most likely by testing out the capabilities of Amazon Web Services. Serverless is the future of the datacentre – or for most organisations, the future without a datacentre.
Tell us your thoughts for 2018 in the comments below…
I was tempted to write this blog post on Computer Weekly’s Downtime blog, where we try to look at the lighter side of the world of IT. But I’m not entirely sure this is a joke.
While budgetary constraints affect the progress of digital government services across the public sector, Whitehall struggles to fill digital vacancies, and skilled IT contractors leave because of IR35 reforms, money is clearly an issue.
But don’t worry this Christmas about priorities, because the Cabinet Office has the critical role covered.
That’s because, if you’re an animator who happens to have national security clearance, this is the job for you:
“We need an animator to create social media animations and GIFs to use on government social media channels and for paid digital advertising,” says the latest Cabinet Office job vacancy. Interested candidates have until 1st January 2018 to apply.
The animator will be needed to “create a series of animations for government social media accounts”.
The ideal applicant should have security clearance, but if you’re an experienced GIF animator who fancies the job but hasn’t spent a lot of time working for GCHQ, MI5 or MI6, don’t worry, the advert says that as an alternative: “We will need the appointee to sign an additional non-disclosure agreement as well as the standard contract, as some of the material is potentially sensitive”.
Potentially sensitive animations? Just think, you could be the person to produce the ultimate GIF on Britain’s secret Brexit negotiation strategy, to stuff it – through the medium of Twitter – to those EU bureaucrats stopping us having our cake and eating it (actually, there’s your first GIF image idea, feel free to use, no credit needed).
There must be animated gags-a-plenty about our new £3.1bn aircraft carrier springing a leak.
Or you could be preparing an entertaining GIF of Pyongyang, the capital of North Korea, going up in a mushroom cloud with a laughing Donald Trump in the background to express the British government’s response to World War 3.
Bear in mind that the job requires an animator able to “work at pace” – so we can all look forward to a veritable flood of guffaw-inducing GIFs in 2018 to explain the government’s policies to us (someone needs to, let’s face it).
Sadly, the excitement won’t last – this is only a six-month contract. But at up to £250 per day – or £32,500 for the contract duration – our government GIF strategy should be in good hands. What taxpayer would begrudge the cost?
Happy Christmas everyone, if you can afford it.
Did you know the UK government has a minister for identity? It’s Baroness Susan Williams, whose full responsibilities go under the grander title of minister of state for countering extremism. Perhaps her biggest issue around looking after identity is that so few people have identified her job exists.
But the UK government is increasingly focused on identity – and to be more specific, digital identity. There’s widespread awareness that for a functioning digital economy, this is a nut that has to be cracked, and soon.
We now have a need to register EU citizens, for a start. The forthcoming General Data Protection Regulation (GDPR) also heightens the need for being able to assure that someone is who they say they are when transacting online.
In the banking world, digital identity sits at the heart of two important regulatory developments – the second Payment Services Directive (PSD2) and Open Banking, which aims to increase competition in retail banks by opening up data to allow fintech challengers to emerge. That is before you consider the ongoing challenges of tackling online fraud.
The British Standards Institute is working on a national standard for digital identity which has been under consultation, known as “PAS 499, Digital identification and authentication – Code of practice”
And work is underway in the Government Digital Service (GDS) to make the Whitehall ID system Gov.uk Verify compatible with eIDAS, the EU-wide electronic ID scheme that will be required for enabling cross-border trading and portability of national ID systems within the EU – and more importantly, if the UK wants to continue to be part of that EU digital economy after Brexit.
How lucky we are, dedicated followers of digital government will cry, that we in the UK have Verify to do all this, don’t we? Well, not quite.
What’s going on with Gov.uk Verify?
At the time of writing, it’s been over seven months since the Gov.uk Verify blog was updated. A month before the most recent post, Verify was placed at the heart of the government’s ambitious transformation strategy, with a goal of 25 million users in 2020. About six weeks after that post, Verify was included as part of the Conservative Party manifesto in the snap general election.
But the team responsible for the government’s critical digital identity system has been silent on its own blog ever since, and the performance of Verify continues to disappoint. What’s going on?
The man in charge of Verify, Nic Harrison, director of service design and assurance at GDS, spoke last month at a low-key event organised by Open Identity Exchange (OIX), an industry body co-ordinating collaboration on digital identity across the public and private sectors.
Harrison stressed that the government remains committed to Verify, but its much-discussed problems were hinted at too, in the opening to his speech when he said, “I know first-hand how difficult it is to establish a federated digital identity scheme. How do I know this? Because I took over Verify just over a year ago” – to which the audience of digital identity experts responded with knowing laughter.
“Establishing a common mechanism [for digital identity assurance] is far from a smooth process. In terms of comparative pain, this morning I was having root canal surgery, which gives you an idea of how much work this really is,” he added.
Harrison went on to discuss the importance of collaboration between public and private sectors, saying that Verify is not intended only to be a tool for accessing public services online, but aims to establish a common standard for digital identity across private and public sectors. That’s an objective worth achieving, with enormous benefits to companies, government and citizens.
However, there is frustration among many organisations in the private sector over what they see as delays caused by GDS.
In particular, identity firms are waiting on GDS to release a long-promised commercial framework that outlines how participants in a digital identity market based on Verify will operate. Companies need to understand, for example, where legal liability lies if they accept a user identity assured and created by government that is used fraudulently.
“There have been numerous ministerial statements due but then postponed. Things do not seem to have moved forwards in any significant way since [the general election]. Market participants are becoming very impatient,” said one source.
When asked by Computer Weekly about the delays and private sector concerns, a Cabinet Office spokesman said: “The government is actively planning to roll out Gov.uk Verify to the private sector in line with the commitments made in the government’s transformation strategy. This will enable people to use the same account, which meets high government standards, to prove their identity online for private sector services, such as opening a bank account without having to go into a branch.”
When asked for more details on the delayed commercial framework, the spokesman added: “Government plans to roll out Verify to the private sector are ongoing and more detail will follow in due course.”
So, not much new there. But it is notable that government rhetoric around Verify is changing.
The minister responsible for GDS, Caroline Nokes, talked for the first time about Verify at an Institute for Government event last month, where she was the first Cabinet Office representative to publicly acknowledge the problems around Verify that have been widely discussed elsewhere.
“We have to look at digital identity as an absolute imperative in the 21st century,” she said.
“I am completely candid – there are challenges with Verify, but actually we have done good work so far. What we do know is that there isn’t an off-the-shelf product that you can simply buy and we’ve done a phenomenal amount on the path to digital identity with Verify, but it’s not an end in itself, it’s about the access to services that a digital identity will give people.”
She added: “I acknowledge that [Verify] is not for everyone, but we need to go down the path of digital identity for citizens.”
What’s more, NHS England is now going its own way on digital identity, building its own platform for ID verification, according to its chief digital officer Juliet Bauer.
“As part of this project we are also looking at other identity systems, including Verify, and working with colleagues across government to create the appropriate solution for health. We’ve been talking to government ID services so that if people wanted to use their government ID they could use that to log in to certain low-level services if that’s what they chose to do,” she said at an event last month.
The Department for Digital, Culture, Media and Sport (DCMS) has taken a growing interest in online identity, in respect of its importance to the UK digital economy. Secretary of state Karen Bradley recently visited India to study the country’s biometric identification system, dubbed Aadhaar – the biggest digital government identity scheme in the world, already rolled out to more than a billion citizens.
Computer Weekly has talked to a lot of people around government about Verify in recent months, and it’s clear the mood is changing. The issues of digital identity in the UK economy, and the future of Gov.uk Verify, are increasingly seen as two separate things.
A recent review of digital identity by McKinsey, commissioned by the Cabinet Office, focused on alternative schemes around the world, and what the UK’s future options may be. The delays in progress updates for Gov.uk Verify are likely to be associated with the outcome of that review – and with a fundamental rethink of the government’s approach. This is how it seems likely things will play out:
Verify could become a brand name, rather than a product produced by GDS. That brand name will encapsulate a set of digital identity standards, for use across the public and private sectors. If you want to be part of the UK’s digital identity infrastructure, you need a product that is “Verify compliant”.
What we currently know as Gov.uk Verify will become the government’s implementation of that standard, offered to departments as an optional platform for their own online public services.
HM Revenue & Customs (HMRC), which has rejected Verify in favour of redeveloping its existing Government Gateway ID system, will conform to the new standards and be “Verify compatible”. The new NHS England system will too.
Therefore, anyone who registers with HMRC for self-assessment, for example, gets a re-usable digital identity that can be used to access any other “Verify-compliant” system, whether in government or not.
Similarly, anyone who created a Verify-compliant digital identity to set up an online bank account can use that same identity to register for self-assessment, and vice versa.
Gov.uk Verify continues on as one element of a wider ecosystem – but probably slowly winding down as departments opt for other solutions from the emerging “Verify-compliant” market.
Any questions asked about why £60m or so has been spent on Gov.uk Verify to produce a system that has a meagre 44% success rate will be told that digital identity systems are complex and take time to get right. The story will be that the money has been an important investment in understanding the requirements and getting the UK to a point where we can create a viable digital identity ecosystem.
That’s not wrong, of course, but it’s not what we were told all the times when Gov.uk Verify was presented as the panacea. Ironically, this is where Verify started – and should have stayed. Back in 2012, then-GDS chief Mike Bracken was clear in an interview with Computer Weekly that government’s role in online identity assurance was about “protocols not products”.
“What we have to do, and what we’ve been reasonably successful in doing, is moving away from a [project where we ask] how do we build an IT model, to how do we get a market protocol in place that everyone can sign up to,” he said at the time.
“It isn’t about building a product, it’s about supporting a protocol and a set of discrete services that people can play a part in, and create value from.”
Somehow along the way, GDS seemed to forget that – but it increasingly seems to be the destination we’re heading for. We will not see 25 million users of Gov.uk Verify – ever. But we might just see 25 million citizens using a Verify-compliant digital identity to operate freely in the UK’s post-Brexit digital economy.
Congratulations to everyone on Computer Weekly’s 2017 list of the most influential people in UK IT – our task of choosing 50 people becomes harder every year.
It’s clear from analysing this year’s UKtech50 that technology is rapidly taking an ever more influential position in the public and private sectors – and the leaders responsible are becoming ever more central to those organisations’ objectives.
This year saw the highest proportion of public sector entrants in the top 50 – about 40%. For all the cynicism around politics and government at the moment, there can be little doubt technology is at the heart of both public service delivery and government policy.
Over the next 12 months, a tech-savvy society will be demanding to see more fruits from the digital investment in Whitehall and local councils. It’s going to be a testing time – new customs systems will start to be introduced, and new borders technology too; Universal Credit will start its accelerated roll-out under the auspices of UKtech50 winner, Department for Work and Pensions IT chief Mayank Prakash.
Pretty much every Whitehall department will need to adapt or update its IT in preparation for Brexit in early 2018. Public sector technology will rarely have faced such expectation and scrutiny – and that’s saying something.
Meanwhile, tech is squarely at the centre of building an economy fit for a post-Brexit future. Taxpayer investments in emerging technologies like 5G, internet of things and artificial intelligence will need to show a return.
Some of our readers questioned the appearance of Brexit secretary David Davis in the UKtech50 list – well, we never said that being influential always necessarily implied a positive influence. Everyone in UK IT will be watching the results of impending negotiations on the new relationship with the European Union. The resulting deal could propel us into a vibrant digital economy – or condemn the UK to second-class status in the so-called fourth industrial revolution.
But the top 50 list also shows progress in transforming the private sector – banks, retailers, media and transport operators feature prominently. Leaders in the tech startup scene represented in the UKtech50 will play a critical role in developing the future of our industry. And the first-time entry for the UK chief of Amazon Web Services demonstrates the changing landscape of the IT supplier environment.
There’s a widespread feeling across the UK tech sector that 2017 has been something of a landmark year – the time that technology took its rightful seat at the top table. Good luck to all our 50 influential leaders – and to those who didn’t make the top 50 – for the challenges and opportunities ahead.
In the fast-expanding world of ubiquitous personal data, sometimes it feels like we’re living in an enormous global beta test to work out what’s acceptable and what’s not.
This week, Google was hit with a £2.7bn legal claim over allegations that it illegally harvested data from 5.4 million UK iPhone users. Google denies the accusations, which are the latest in the long-running “Safari workaround” saga whereby the search giant bypassed privacy controls in Apple’s browser.
The UK government has been forced to reconsider its controversial Investigatory Powers Act after the European Court of Justice upheld a claim by Labour deputy leader Tom Watson that indiscriminately collecting our personal data online was illegal. A new consultation on the proposed changes kicked off this week.
And we’ve also heard warnings from campaigners at Privacy International about the scale of data collection by financial institutions as a result of the growth of fintech – new, typically mobile app-based services to help us manage our money.
It’s clear that even with laws in place, the legality of what companies can and cannot do with our data is a minefield, with every new controversy lacking established case law to determine what’s right or wrong. A further example has recently come to light, as the High Court found Morrisons supermarket chain liable for a data breach in which a former employee posted the personal data of thousands of workers online in 2014.
Internet giants like Google and Facebook are constantly testing the boundaries of what society will consider acceptable – and so far, they are extending those boundaries faster than society can keep up.
While data sits at the heart of the digital revolution we’re going through, our personal information is at the core of the revolutionary aspects of this epochal period of change.
Many major times of social change in history have been characterised by greater availability of information – the democratisation of data. The Reformation was powered by the printing press, churning out Bibles in the thousands that weakened the hold of the Catholic Church. There was the growth of libraries during the Renaissance– and the explosion in newspapers in the UK during the Industrial Revolution.
“Big data” is the modern equivalent – the significant difference being that the information becoming ubiquitous is all about us. As that data increasingly feeds into artificial intelligence systems, the question of who controls and moderates its use becomes ever more critical.
The government recognised this in the recent Budget, offering £9m to fund a new centre for data ethics. New EU data protection laws next year also hope to give individuals more power over how their data is collected and processed.
If you’re a digital optimist, history suggests that eventually we will establish boundaries of acceptability – both legally and ethically. But until we get there – and it seems a long way off – we’re at the mercy of corporations and governments testing how far they can push us all.
Chancellor Philip Hammond has announced the most tech-friendly Budget ever. It wasn’t only the headline figures that mattered though, welcome as they were, including more than £500m of funding, with a range of initiatives to boost artificial intelligence (AI), driverless cars, computer science education, broadband, 5G, tech startups, open data, digital skills and R&D.
More than that, the chancellor put technology at the heart of solving the UK’s productivity crisis – and as such, right at the centre of attempts to make Brexit an economic success.
Hammond identified Britain’s woeful productivity gap as its biggest economic challenge – it will be after Brexit, and it would be if we weren’t leaving the EU. The Office for Budget Responsibility (OBR) even revised downwards its forecast for productivity growth after UK productivity fell by 0.6% in the first six months of 2017.
As a result, the government is investing in what it sees as the next-generation technologies with the most promise to unlock greater productivity. More productivity means more competitive businesses; it means companies will (in theory) put up wages, helping to address the decline in real earnings since the 2008 crash.
That in turn alleviates pressure on welfare spending, which eases social inequality, which helps consumer spending, which boosts GDP in the sort of positive growth cycle every government tells us it’s capable of delivering.
Nobody is pretending technology is a panacea – it’s not going to deliver all those benefits on its own – but it’s clear the government sees tech as central to its hopes and plans to ensure Brexit is not the disaster many in the IT sector (and beyond) fear it will be.
The OBR agrees – committee member Sir Charles Bean told the Guardian the forecaster does not agree with doom-laden predictions that AI will destroy jobs. The government has taken that on board and sees such technologies as an investment that delivers growth in productivity in the way that investing in plant and machinery would have done 50 years ago for a manufacturer. It would be good to see similar tax incentives for corporate investment in technology, but that’s for another day.
As the CBI has pointed out, we need more than funding for next-generation technologies – firms need to improve their game on implementing established IT too. But for the first time, tech is not simply an economic nice-to-have – the government has placed it at the heart of its political strategy too. All they have to do now, is deliver.
It would be churlish not to applaud the government’s pre-Budget commitments to the tech sector – an increase in funding to support tech startups and expanding visa availability for bringing in top overseas talent.
More would have been nice – the new visa places will only amount to a few hundred extra people, for example – but with the IT industry gripped by Brexit uncertainty, it should take what it can get for now.
However, the government continues to be fixated on tech startups as the way to boost the UK’s digital economy. They are important, of course – let’s not understate the benefits of building an even stronger base of innovative new companies. But to truly become a global digital leader, there’s a lot more to be done, and a lot more government can do.
One of the biggest economic problems the UK faces is its poor productivity – German workers could go home on a Thursday afternoon and still be more productive than British workers completing a five-day week. Despite efforts to address the issue, UK productivity decreased by 0.1% between April and June 2017, having fallen 0.5% in the first three months of the year.
A successful digital economy needs a thriving base of digital startups, but more importantly it needs established companies to become more digital. Research by the Confederation for British Industry (CBI) shows that poor technology adoption by businesses is at the heart of the UK’s productivity gap.
This isn’t about firms being leading-edge adopters of new technologies such as artificial intelligence or internet of things, it’s about investing more in well-proven, established technologies such as mobile, cloud and e-procurement.
Shockingly, the CBI’s report said that UK take-up of enterprise resource planning (ERP) and customer relationship management (CRM) – two of the most basic, fundamental software building blocks for any modern organisation – is lower than it was in Denmark in 2009.
At the recent CBI conference, prime minister Theresa May challenged UK businesses to “embrace technological change”. In response, CBI director general Carolyn Fairbairn said government has a responsibility to “create the right backdrop for firms to invest”. Both are correct.
Outside of a relatively small number of innovative UK companies, there is an enduring technophobia that holds back British business and our digital economy. CEOs might have come to love their iPhones, but they are still reluctant to invest in the systems and skills needed to make their companies into digital exemplars. And post-Brexit, we really will need to be a country of digital exemplars.
The UK tax regime is still biased towards investment in goods and machinery – the heartland of a 20th century manufacturing base. There are fewer incentives to encourage spend on software and IT skills – the core of a 21st century digital world.
It will be great for Britain to be a global leader in tech startups. It will be even better for our global competitiveness if we can incentivise all businesses to become leaders in technology adoption.
There is a real danger that technology education in schools will wither and die, with all the risks that brings to the UK’s digital skills, research and innovation capabilities.
There was great fanfare in 2014 when the new computing curriculum was introduced and made mandatory for children from ages five to 16, replacing the old ICT course that was derided as simply teaching kids to use Microsoft Office.
After the first year of the new computing GCSE, the signs were positive – student numbers grew 11%. But only two years later, that growth has plateaued, with GCSE entries rising just 9% from 2016 to 2017 – that’s only 69,350 children taking the exam, barely 11% of the student population in the school year. ICT exam numbers have consistently dropped, down to 61,500 this year, and that curriculum is expected to be scrapped.
Research suggests there will be 800,000 unfilled IT and digital jobs in the UK by 2020 – and they are not going to be filled by GCSE computing students.
Now a report by the Royal Society – the science body which recommended the new curriculum five years ago – shows that 54% of schools in England do not even offer the GCSE computer science exam. That means 175,000 pupils – 30% of all English GCSE students – attend a school that does not offer computer science GCSE. Every year.
That’s without mentioning that only 20% of GCSE computer science candidates were female, falling to 10% at A-level – perpetuating the shameful lack of women working in IT in the UK.
The problem isn’t only with students. The Royal Society found the English education system only recruits 68% of its target for computing teacher training courses – a lower success rate than courses to teach classics.
Separate research suggests that two-thirds of teachers do not think they have the right skills or tools to teach coding to children in the first place.
Employers know there is a problem too – 92% of CIOs think current IT recruitment needs are not being met by schools, colleges, universities and technical schools.
The UK government has rightly identified IT education as crucial to future economic success. The recent launch of the new T-levels is the latest hope. But so far in schools, IT education is not working.
The Royal Society is calling for £60m investment in computing education over the next five years – a tenfold increase to bring computing to comparable levels of support as maths and physics. With austerity ongoing, and Brexit on the horizon, you can’t see it happening.
For all the good words from government about digital skills, if we can’t get it right in schools, we won’t get it right in the workplace. It’s not yet a crisis but you can see a shadow approaching the horizon.
Employers, academia and government need to stop a potential crisis becoming a disaster that would harm the UK economy at every level.
The government’s digital minister, Matt Hancock, is a busy and enthusiastic advocate for the UK’s digital economy. In the past month alone, he’s given five speeches, published an independent review into making the UK a world leader in artificial intelligence, and signed a deal with Canada to work together on digital government.
If some parts of his speeches can be a little, well, repetitive, that can be forgiven in the light of the many digital initiatives that come under his remit. And no doubt his predecessor in the job, Ed Vaizey, might raise an eyebrow at Hancock’s recent description of himself as the UK’s “first ever digital minister” – especially since Vaizey claimed to have created the role, back in 2014.
Tory party rivalries aside, Hancock should be congratulated for throwing himself into the role with gusto. There’s one little problem though.
Computer Weekly chaired a panel debate at this week’s Supercharging the Digital Economy event, organised by technology trade association TechUK – following on from Hancock’s opening keynote. We asked the audience of tech sector leaders a simple question: Will Brexit help or hinder the development of advanced technologies in the UK?
More than 90% of the delegates in the online straw poll said, “Hinder”. About 4% answered, “Help”. The rest weren’t sure.
That’s an overwhelming statement of the single biggest concern the UK digital sector is worried about at the moment. And yet, not once did Hancock mention or even acknowledge the Brexit elephant in the room during his talk.
He doesn’t avoid the issue entirely – in a speech to the Institute of Directors on 17 October, he said: “Pushing for a good deal for the tech industry is a core part of our Brexit negotiations.” You should hope so, too.
Computer Weekly is by no means the first, and we won’t be the last to say that we urgently need greater clarity on the UK’s post-Brexit future. The release this week of the list of industries covered by the Department for Exiting the EU’s Brexit impact assessments included IT, software and services, and telecoms – we’re all waiting to see if those critically important reports are published.
The government is right to put an emphasis on the digital economy as central to the UK’s future success outside the European Union – it would be just as central if we remained. But ignoring the genuine fears of the industry’s leaders helps nobody.
If Hancock is the cheerleader for our digital future, he needs to address the concerns of the sector with more than the standard government platitudes about Brexit – our technology leaders deserve to be offered clarity and confidence.
There’s an interesting story doing the rounds this week that highlights some important issues around the UK government’s aim to have a cloud-first policy for IT purchasing.
The original scoop, another good piece from The Register, said that HM Revenue & Customs’ (HMRC) decision to switch some of its cloud estate from a small UK cloud provider, Manchester-based Datacentred, to Amazon Web Services (AWS), sent the SME into administration.
The story was catnip for national newspapers eager to point out the juxtaposition of Amazon’s meagre tax payments to HMRC and the very same department choosing to give the US giant a significant contract at the expense of a plucky British SME.
However, according to a Computer Weekly source with knowledge of the situation, HMRC’s decision has wider implications.
For a start, according to our source, “Datacentred was already dead.”
The last financial results published for the cloud SME tend to back up that claim. In October 2016, DataCentred received a £1m investment from Barclays, the Greater Manchester Authority and others. Its annual revenue increased from £171,000 in 2015 to nearly £1.2m in 2016, but it recorded losses of almost £1.8m in the last financial year.
It’s not unusual for a startup to lose money in its early years, but losing 50% more than it sold is rarely a sign of a healthy future. It seems unlikely HMRC was responsible for annual losses of £1.8m – although its decision to switch to AWS was probably the final straw that led to Datacentred’s demise.
Our source suggested that HMRC moved providers precisely because it saw the financial mess Datacentred was in – “basic risk management” as they put it.
In which case, you could argue that HMRC was wise to move to AWS when it did to avoid a critical cloud-based system being put in jeopardy.
What was the system in question?
As Computer Weekly reported in February last year, Datacentred was using OpenStack to support the roll-out of a multi-channel digital tax platform for HMRC.
The deployment was to play a central role in helping HMRC achieve its goal of giving UK taxpayers access to a fully digital tax system by 2020. The platform uses a microservices architecture with built-in API support. It acts as a bridge between HMRC’s legacy VAT, self-assessment and PAYE systems, and the new range of digital services it is rolling out for people to manage their tax affairs online.
Imagine the public furore if part of the Making Tax Digital system became unavailable or compromised by the collapse of its cloud provider?
AWS didn’t open its London datacentre until December 2016, its first UK cloud region. While the government doesn’t mandate UK hosting for cloud services, except for certain specific datasets, it’s understandable that HMRC would have seen hosting tax data inside the UK as a prerequisite. As such, HMRC wouldn’t have been able to use Amazon when it opted initially to work with Datacentred the previous year.
The reality for startup UK cloud providers is that few will be able to provide the scale that a mega-department like HMRC requires over the long-term.
It’s a difficult Catch-22 for an SME – they won’t achieve scale without the support of large organisations such as government departments, but they can’t deliver the scale needed without over-stretching themselves financially.
The reality of the cloud market, long-term, is that only the global cloud giants will be able to service customers with such large-scale requirements. Smaller cloud providers will find their niche elsewhere.
While that might seem at odds with the government preference for purchasing digital systems from UK SMEs, the likelihood is that SMEs will ultimately benefit from the opportunities provided by departments using cloud for infrastructure and platform as a service (IaaS and PaaS) foundations, with SMEs providing services and software to build digital platforms that run in those cloud environments.
HMRC has also demonstrated the benefits of the cloud-first approach for government. It opted to use an open source solution in Openstack, using a modern microservices architecture rather than an old-school monolithic application, and as such it was able to “lift and shift” that workload to another cloud provider when it needed to.
Should HMRC decide in future that AWS is no longer its best option – whether for financial, technical or customer service reasons – it now has experience of migrating from one cloud provider to another.
Surely that’s in the taxpayers’ best interest?
UPDATE: 26 October 2017
MPs on the Public Accounts Committee (PAC) yesterday questioned HMRC CEO Jon Thompson over the Datacentred/AWS story, parroting the lines used by national newspapers around use of SME suppliers and the demise of the UK cloud provider.
As the transcript below reveals, Thompson said HMRC cut its cloud costs by 50% through switching to AWS, and also reiterated the point made by Computer Weekly’s source that an organisation of HMRC’s size is best supplied by one of the large, hyperscale cloud providers such as AWS or Microsoft Azure.
Meg Hillier (chair of PAC): Your relationship with Amazon and data services, you’ve changed contracts and now working with an Amazon company to hold HMRC data. Can you explain why HMRC did that and whether this flies in the face of the government’s proposal to contract with more small and medium sized enterprises (SMEs)?
Jon Thompson: So I don’t personally think there is anything wrong with HMRC contracting with Amazon Web Services and that’s indeed what we’ve done. If you wind back a bit and think about IT and HMRC, it was not that long ago that we had one enormous deal, if you remember rightly. More than £700m a year [for the Aspire outsourcing contract], and we decided to break that deal up, insource it all and then spin some of that back into the market. What that’s done is provide a range of market opportunities, and we think that’s attracted somewhere around 150 SMEs working with us now that wouldn’t have worked with us before, because we were working through that enormous deal.
Hillier: There are SMEs who lost their business as a result of you going with this [AWS], and why have you gone with a bigger contract on this particular aspect?
Thompson: There are two reasons really. One is… the market has moved on for very large businesses, and we’re a very large business, into what’s called hyperscale cloud. So you’re not just dealing in a cloud environment, you’re dealing with enormous businesses holding significant data. We need resilience in datacentres and we need someone who can hold all that data for us.
Hillier: So AWS is the only type of organisation that can have that level of resilience that HMRC needs?
Thompson: No, there are two. And the price reduction on this particular one was more than 50% for us, so there’s a clear value for money case for us moving down this route of scaling up the way in which data is held. We then come out of the datacentre business so we don’t have physical buildings ourselves, we get much more resilience because it can be held in multiple sites so if one goes down we don’t lose data and we don’t lose services.
Hillier: There is a government mission to increase the value of contracts let to SMEs to 33% of all contracts.
Thompson: I understand that. We are increasing the amount of business in relation to SMEs but in this particular case, an SME was not successful. I understand that you’re looking at the one that’s attracted publicity in relation to the loss as opposed to significant number of contracts that have gone to SMEs after the break-up of one single £700m-a-year deal.