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Jacqui Smith has been urged to sack intelligence officials responsible for the failure of a secret major IT project after tens of millions of pounds had already been spent.

The call for heads to roll over the scrapping of SCOPE Phase II came yesterday from Labour backbencher Andrew MacKinlay.

SCOPE Phase II was the second stage of a project to upgrade communications and data sharing between the intelligence agencies.

It was meant to provide access to intelligence to British agents overseas and friendly foreign agencies, but was scrapped last year for undisclosed reasons. The Cabinet Office is now negotiating its way out of a huge contract with an unnamed private sector IT supplier.

MacKinlay said: "This should be a matter for a major inquiry, and people should be sacked for it.

"It is a classic example of the culture in the country: the bigger the mess up, the greater the cost, and the higher the rank of the person who presided over the mess up, the greater the rewards."

He named the Cabinet Secretary, Sir Gus O'Donnell, as one of the senior civil servants he believes should - but will not - be held to account for the failure of SCOPE Phase II.

"I have no doubt that the Cabinet Secretary will, in time, be awarded a seat in the House of Lords, and that some of the other people who presided over this either already have gongs or will have their names advanced on a subsequent honours list," MacKinlay said.

MPs were debating the annual report of the Intelligence and Security Committee (ISC), which meets in private and acts as the main parliamentary oversight body for MI5, MI6 and GCHQ. The report was unusually damning in its criticism of the intelligence agencies over SCOPE Phase II.

"We have consistently reported concerns about SCOPE and are appalled that Phase II of the system – on which tens of millions of pounds have been spent – has now had to be scrapped," the cross-party group of MPs wrote.

When the report was published in March, the Cabinet Office had not yet disclosed to the ISC how or why it chose to scrap the system. Any replacement must be subject to "more stringent controls, and greater management and financial accountability", the Committee wrote. It plans an investigation of failures on SCOPE Phase II and a report in the next year.

MacKinlay's attack was joined by further angry criticisms from fellow Labour MP Dari Taylor, a member of the ISC. "It has been a costly and damaging experience," she said. "We are talking about highly complicated communications technology and seriously complex science, and an absolute requirement that the system should be secure."

The Shadow Home Secretary Chris Grayling called on Jacqui Smith to show that lessons would be learned when plans for future secure communications systems are developed.

Smith said: "The Government take this issue extremely seriously. We are very aware of the loss of any public funds, and especially at the current time.

"The decision to terminate the contract was not taken lightly - it was taken after detailed consideration and legal and technical advice."

She said the government would cooperate fully with the ISC inquiry into the failure of SCOPE Phase II. ®

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