MPs have criticised HM Customs and Excise for spending over £100 million on a new IT system without fully analysing its expected costs and benefits.

A report published by the Commons public accounts committee on Tuesday concluded that the situation was "unsatisfactory".

It also revealed that Customs' original estimate in October 2002 of financial benefits totalling £4 billion "was not rigorous and they reduced it to £1.2 billion in November 2003".

It is thought the expected benefits could also be further reduced.

However, there was a welcome for the fact that Customs is seeking to use new technology to deliver better quality public services.

The aim of the programmes is to generate increased revenue and improve efficiency with better information and analysis to target tax compliance and anti-smuggling work.

The committee's report examined the implementation of HM Customs and Excise's e-programme, including the "slow progress" made in developing an electronic VAT service.

A PFI contract with Fujitsu for IT infrastructure has increased from £500 million to £929 million, with the report saying this was due partly to a rise in the volume of Customs' work since the contract was signed in 1999 and partly to new requirements brought about by the e-programme.

"Retendering the contract would have given better assurance on the value for money of the revised contract, but would also have put at risk existing revenue and the expected benefits of the e-programme which Customs estimated to be nearly £1 billion," said the report.

"Whether Customs struck the right balance in making this judgement is hard to determine while many of the expected benefits remain to be demonstrated."

Committee chairman Edward Leigh backed the use of new technology to boost public services.

"But it cannot be acceptable that Customs has already spent huge sums of public money without being confident about the scale of the likely benefits," he warned.

"Spending so far has totalled £100 million. At the same time, the financial savings expected, once thought to be worth £4 billion, have fallen to £1.2 billion and possibly less.

"Customs must complete a proper and comprehensive business plan, identifying clearly the expected benefits and when they will be delivered."