National Insurance system costs double to £300m

The Inland Revenue's national insurance computer system, funded through the controversial private finance initiative, has cost the government more than double the figure initially agreed.

Andersen Consulting - now Accenture - was awarded the £134m National Insurance Recording System (NIRS2) contract in 1995 but a new report by the National Audit Office (NAO) reveals that the cost has rocketed to £300m because of the extra costs of upgrading the NIRS2 system, and compensation payments resulting from errors.

Additional costs include £85m compensation to individuals whose rebate payments had been made late as a result of difficulties and delays in implementing the NIRS2 system, and £67.9m for an 'Integrated Recovery Programme' to fix the problems with the system when problems emerged after it went live in 1997.

The report said: "The Inland Revenue and DWP considered that, without this extra funding, there would have been a significant risk that they would have failed to cope with the amount of new work coming into the National Insurance Contributions Office and this would have presented a continuing problem, unrelated to the introduction of NIRS 2."

The initial problems with NIRS2 have been well documented, with a Public Accounts Committee report in 1999 finding 1,500 faults in the system.

But in the NAO report, the Inland Revenue claims the system is now working within the expectations of the contractual service level agreements, and that the seven system releases since April 2000 "have all been introduced successfully".

The report also reveals that the Inland Revenue is introducing initiatives, including electronic submission of information from employers, to reduce the problem of inaccurate information and tackle the estimated 100 million unmatched records in the system.

Accenture unsuccessfully bid for renewal of the NIRS2 contract last year and will now hand over to Cap Gemini Ernst & Young in April 2005.

A spokesman for Accenture said NIRS2 cost £1m a year less than the system in use before 1994 and as such was originally deemed "strikingly good value" by the NAO. He also said the compensation issue is a "red herring" in that is comprises of payments the Revenue had retained which they eventually paid back to the affected citizens - at no loss or gain to the taxpayer.