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HM Revenue & Customs is poised to drop Barclays from the line-up of lenders that provide banking services to hundreds of UK government organisations, putting an end to a 10-year agreement that has netted the bank tens of millions of pounds.
The UK tax authority is set to hand a new £99mn contract to Lloyds Banking Group, according to three people familiar with the matter. It will join existing providers NatWest and Citigroup in a deal expected to be worth £334mn for the three banks over 12 years.
The decision is a fresh blow to Barclays, after an earlier campaign by environmental protesters for HMRC to cut ties with the bank over its fossil fuel financing.
Earlier this year, the lender also suffered a three-day outage that caused chaos for millions of customers, including those who were trying to meet a deadline to make payments to HMRC after filing their self-assessment tax returns.
HMRC is running the procurement process on behalf of Government Banking, which was set up in 2008 after the Bank of England opted to stop transactional banking. Government Banking was tasked with selecting private sector banks to facilitate payments on behalf of government agencies and other public bodies such as the National Health Service.
The tax authority is expected to announce the contract later this month. The agreement was in a standstill period until March 3 during which banks still had a right to contest the decision, one of the people said.
The contract is awarded in three so-called lots, two of which cover general banking and one handles foreign exchange services. Lot one, previously awarded to Barclays, will be taken over by Lloyds while lots two and three will stay with NatWest and Citi, respectively.
The estimated value of the agreement is £99mn for lot one, £166mn for lot two and £69mn for lot three over the lifetime of the contract, according to a tender issued by HMRC.
That is significantly higher than the £78.5mn total value of the previous seven-year contract signed in 2015, which was subsequently extended for another three years. Barclays could have earned about £55mn over the ten-year life of the contract, based on the public contract award notice published by HMRC.
“We always follow government procurement rules when awarding contracts, ensuring value for money for taxpayers,” HMRC said in a statement.
HMRC is not required to change banks but it will often review contracts to make sure it is getting the best value from providers, according to a person familiar with the authority.
There are several criteria considered in the selection process with the greatest weighting given to service description and costs. However, banks are also evaluated based on their social value and environmental credentials, which carry a 10 per cent and 7.5 per cent weighting in the tender respectively.
HMRC’s relationship with Barclays has previously come under fire from environmental groups. Extinction Rebellion in 2021 called for the tax authority to exit its “toxic relationship” with the British lender, saying the contract left “taxpayers no choice but to be complicit in environmental exploitation without their consent or knowledge.”
Other institutions, including the National Trust and charity Christian Aid, have cut ties with Barclays over its green credentials while Cambridge university is considering doing the same, the FT previously reported.
A person familiar with the bank’s position said the decision to drop Barclays was not related to the environmental campaigns, and that the bank would still provide merchant acquiring services to HMRC outside of the contract.
The government used NatWest and Citi as its banks until 2015 when Barclays was added in what the authority described as a “major retender exercise”.
