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Clarification

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Point 2 in the C&AG introduction (page 26), should read:

“From April 2003 an additional one per cent National Insurance contribution has been collected and allocated directly to the National Health Service, bringing the total payments to the NHS to some £16.8 billion in 2004-2005 (£14.9 billion in 2003-2004).”

Head of the National Audit Office Sir John Bourn today reported to Parliament on the National Insurance Fund (GB) account 2004-2005. This account is the responsibility of HM Revenue and Customs and benefit payments are made from the Fund by the Department for Work and Pensions.

Sir John gave an unqualified audit opinion on the National Insurance Fund Account, having removed the qualification of previous years following positive actions by the Department for Work and Pensions in respect of missing benefit case documents.

Individuals have to pay or be credited with sufficient National Insurance contributions each tax year to qualify for benefit or basic state pension purposes. In catch-up exercises to cover the six years up to 2001-02, Deficiency Notices were sent by HM Revenue and Customs and by the Department for Work and Pensions to individuals who had not contributed enough. The exercises are estimated to have cost about £100 million and have been carried out to plan and timetable. They were successful particularly in helping a significant minority of pensioners to improve their financial circumstances by making good deficiencies in their NI contribution record.

In September 2004 HM Revenue and Customs and the Department for Work and Pensions became aware that information on periods of incapacity recorded on the two Departments’ systems did not match in all cases.. This will need to be addressed by HMRC and DWP working jointly. The implications are not fully understood at the moment but there may have been effects, in particular, for some people claiming contributory Incapacity Benefit. The Departments appreciate the need to correct the errors and understand that there may be difficult decisions to be taken in undertaking what could be a large and complex task which comes on top of routine processing.

HM Revenue and Customs has taken a range of important initiatives to assist employers in improving the quality of the information they send to the Revenue in their end-of-year employee returns. Nevertheless, employers’ information continues to generate each year over two million National Insurance contribution records that cannot be matched to the relevant contributors, despite HM Revenue and Customs’ efforts to trace them. Some of these non-matched items might have an impact on benefit payment.

"I am pleased that I am able to give an unqualified opinion on the National Insurance Fund Account following the advances made by DWP and HMRC in improving their systems"

"Nevertheless, HM Revenue and Customs and the Department for Work and Pensions need to correct errors in Incapacity Benefit records on the two Departments’ systems. There may be difficult decisions to be taken in undertaking what could be a large and complex task which comes on top of routine processing"

"Poor quality NI contributions information from some employers continues to cause difficulties for HM Revenue and Customs and potentially for the individuals seeking benefits. The hoped for effects of initiatives to improve employers’ data quality cannot yet be demonstrated because of problems with some IT systems in the summer of 2005”

Sir John Bourn

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