Reason it will never work? Salaries outside paygrades.
It's time to give up on the idea of ever having central government IT functions unless the grade structure is changed. You just cannot recruit perm staff with the necessary skills if you are trying to fit into the civil service pay grades.
For example - bottom of the deputy director pay grade is somewhere around £50-60k (I seem to remember). A dep director is not a doer, he/she would be someone managing an entire IT project - the pyramid then flows down to the point where to fit in with the grades and salaries, anyone who actually does any work like cutting code or configuring development environments could be on a maxium of £30k ish (my guess is the old HEO grade in DWP, or Grade D in HM Treasury). In Central London.
Now, I'm not saying that you can't live on £30k in London, but anyone half decent could make more elsewhere.