The web giant Amazon has cornered more than a third of the lucrative UK market in storing and processing government-held information, including sensitive biometric details and tax records, figures leaked to The Sunday Telegraph suggest.
The details come as Amazon is due to announce financial results this week that will highlight how important this part of the business, known as Amazon Web Services, is to the profitability of a company much better known for its online superstore.
In the first six months of this year, for example, AWS made $4.3bn (£3.33bn) on revenues of $16bn, while the more famous part of Amazon made only $3.1bn on revenues of $107bn.
AWS profits have been driven by rocketing demand for its “cloud” services – where customers pay to store data or buy processing power on computers owned and run by Amazon. AWS revenues from UK government contracts grew by more than 50pc last year, the leaked figures suggest.
Such is the pace of the growth that some critics claim that the UK Government’s reliance on AWS poses a systemic risk, should AWS servers crash.
Last year, a Lloyd’s of London report estimated that even a temporary shutdown at a major cloud provider like AWS could wreak almost $20bn in business losses.
There are also questions about Amazon’s tax status. AWS recently created a Luxembourg-based subsidiary whose accounts for 2018 show it paid just €10m (£8.6m) tax on €1.9bn revenues. In the same year, HMRC business to AWS was worth £15m.
Other concerns involve:
- Allegations of a “revolving door” between Whitehall and AWS, with senior civil servants taking up lucrative jobs at the US provider within months of overseeing government cloud contracts
- Fears that government data hosted on AWS servers could be requisitioned by the US directly from Amazon
- Concerns that AWS contracts won with low prices effectively “lock-in” customers, who then pay more for add-ons, and that its high prices are a bar to medical research
- Accusations that government bias towards AWS is “an unfair competitive advantage” that has deprived British companies of contracts and cost job.
An Amazon spokesman said it “pays all applicable taxes, due on its profits” and that “government departments using AWS are not only enjoying cost savings… but also supporting a vast ecosystem of smaller companies”.
The rise of AWS comes less than a decade after the public accounts committee described government reliance on a few major IT suppliers as an “oligopoly” in a report titled “A Recipe For Rip-Offs”.
Subsequently in 2012, Cabinet Office minister Francis Maude promised that the Government would no longer “shut out smaller more innovative suppliers” in favour of “a limited number of very large suppliers on long-term, exclusive contracts” – a bias which he said was “bad for businesses and growth”.
The coalition Government then adopted a “Cloud First” strategy, encouraging many British companies to make what one called “substantial investments to get a part of that [market]” for storing official data too sensitive to be held abroad.
From 2016, however, large US tech firms started building data centres in the UK to get round the territorial restriction, and in 2017 the Government Digital Service, under chief technology officer Liam Maxwell, declared that the use of “public cloud” providers, like Amazon, whose services are open to all, “will be appropriate for the vast majority of government information and services”.
A year later, in 2018, Maxwell left government to become “director of government transformation” at AWS. His move followed that of Norman Driskell, the Home Office’s chief digital officer, and was followed this year by Alex Holmes, the deputy director of cyber security at the Department of Culture, Media and Sport.
“In the case of some of Amazon’s recruits they know their way around Whitehall and know what departments are planning and so can have an inroad,” says Rob Anderson, Central Government analyst at GlobalData.
“It is a bit wretched, I don’t agree with it,” says Lindsay Smith, an expert on cloud sales to the public sector, about the moves between the Government and AWS. “Some of these things are a little bit whiffy.”
Smith has compiled his own figures to show the creeping dominance of major US cloud providers in the UK public sector.
In 2018, they show, large companies like AWS won four-fifths of the £224m public sector market in cloud-hosting, up 89pc, in what he describes as “the demise of the [Government’s] SME policy”.
Others, like Lawrence Jones, chief executive of the British cloud provider UK Fast, go further, describing situations where “a massive government contract [was] awarded then months later, the same person that awarded the contract to AWS, guess what, has got a whopping job with a huge salary at AWS”.
He adds: “Now, you could say that’s absolute coincidence, but really? That sort of thing shouldn’t be allowed.”
AWS competition can have significant consequences. In 2015, the British cloud firm DataCentred went under after HMRC switched to AWS. “You have to question to the societal value of HMRC favouring a company with questionable tax arrangements,” says cloud analyst Bill Mew.
British cloud companies also complain that sensitive government data stored by AWS would be subject to foreign snooping under US legislation, notably the Cloud Act passed last year. “The American government can get access to any American-owned companies, wherever the data is hosted,” says Lawrence Jones. “They complain that the Chinese are spying, but they’ve put it in their legislation that they can do exactly that.”
The Cloud Act was passed following a 2015 case in which Microsoft refused to hand over data on an individual stored in Dublin to the US government.
“The Cloud Act allows them to do exactly that, to reach beyond its own borders,” says Frank Jennings, a lawyer specialising in cloud legislation. A blog written by Michael Punke, who works on global public policy at AWS, insisted that “to compel service providers to provide data” US authorities are required to cross “a high [legal] bar”.
Then there is the issue of cost. Many companies use AWS because of its “pay-as-you-go” model, in which the price rises with the amount of data stored and processed. But analysts suggest that this allows the company to win contracts with cheap initial prices, which subsequently spiral.
In 2017 the Department for Communities & Local Government signed a 24-month contract with AWS for “hosting and support services” worth £959,593.54 “plus estimated costs up to £400,000” for extras. The contract was subsequently varied three times, until it was ultimately priced at £2,611,563.54 excluding VAT, a 172pc increase.
“A deputy CIO of a central government agency told me that infrastructure providers from America have come in with predatory pricing, that ‘I just can’t afford to say no to’,” says Lindsay Smith.
Even Facebook boss Mark Zuckerberg last week said that the cost of computing power purchased from AWS was now a major concern for laboratories engaged in medical research. “Let’s call up Jeff [Bezos] and talk about this,” he joked.
But the flexibility and power of AWS is still hugely attractive. It is used by the CIA, and even Amazon competitors, like Netflix and Apple.
So profound has AWS’s grip on the infrastructure of the internet become since it was founded in 2002, that Bezos has described it as “a business miracle”.
“This is like the greatest piece of business luck in the history of business as far as I know,” Bezos said last year at the Economic Club of Washington DC.
Today, Google and Microsoft are desperately trying to catch up, but AWS remains by far the dominant player. Research earlier this year suggested AWS had captured 48pc of a global cloud market worth $32bn in 2018, with Microsoft on 15pc and Google on 4pc.
In Britain, its leading position in cloud provision to the public sector, including government departments like the Home Office, Department of Work and Pensions, and the Cabinet Office, as well as NHS Digital and the National Crime Agency, is also entrenched.
Figures obtained by The Sunday Telegraph suggest that AWS has captured more than a third of the UK public sector market with revenues of more than £100m in the last financial year.
The sums in the private research conducted by analysts TechMarketView, were confirmed by the company this week.