Special report: Amazon's extraordinary grip on British data

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. Amazon says its service is designed to diffuse the potential for systemic risk and minimise downtime.

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:

•  Personnel moving from Whitehall to AWS, with senior civil servants taking up lucrative jobs at the US provider after implementing government 'Cloud First' policy
• Fears that government data hosted on AWS servers could be requisitioned by the US directly from Amazon
• Concerns that AWS contracts are won with "lowball" prices which can spiral, and even become 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”.

Oligopoly concerns

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, large US tech firms started building data centres in the UK to get round the territorial restriction. In 2017, with Liam Maxwell as National Technology Adviser, the Government 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”.

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.

Crony capitalism

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”.

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, chief executive of the British cloud provider UK Fast. “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”.

Spiralling costs

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.

“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. "They are lowballing."

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 (or at least the service from which it evolved) 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.

Amazon Web Services

Contrary to an earlier version of this feature, the 2017 Department for Communities & Local Government contract for the provision of AWS hosting and platform services was with a third party provider and not with AWS itself.  In addition, AWS has confirmed that none of the civil servants it has hired were formerly responsible for awarding government contracts to AWS, and that it takes steps to ensure that appropriate protocols and processes are in place so that integrity and good governance around contracts are preserved.  We are happy to correct these errors.