David Varney, head of HM Revenue & Customs, is expected to be questioned today by the Treasury Select Committee over allegations of a secret deal between his department and US IT contractor, EDS.

Michael Fallon, Tory MP and a member of the parliamentary committee, called for the inquiry after details emerged of a settlement, which will enable the Revenue to claw back about £30m of legal compensation owed to it, only if EDS wins new public sector contracts.

The Times reported that only some of the £71m out-of-court settlement over the tax credits system debacle is guaranteed with the rest to be paid back in the form of a percentage of the work of future government contracts won by EDS both from Revenue & Customs and other departments.

Fallon said the deal undermined the 'fair' process for handing out lucrative government contracts.

The Revenue insisted its settlement with EDS would not influence future procurement processes.

The NAO is believed to be considering investigating the matter.