HL Deb 25 January 1999 vol 596 cc801-14

(" .—(1) This Act (apart from this section) shall not come into force until the conditions set out in subsections (2) and (3) are satisfied. (2) The first condition is—

  1. (a) that the NIRS2 computer system on which national insurance contributions are to be held is fully operational; and
  2. (b) that all such contributions records have been successfully installed on that computer system.

(3) The second condition is that, on the day on which an order to bring this Act (or any provision of it) into force is made, no social security benefit payments which depend on national insurance contributions records shall be outstanding for more than one month.").

The noble Lord said: My Lords, this amendment seeks to deal with matters we debated to some extent at the Committee stage of the Bill and also in the uprating order debates which we had last week. The amendment, together with Amendment No. 29 to which it is linked, relates to the problems which have arisen with regard to the National Insurance Contributions Agency's computer. In particular, it raises the question of whether or not it is appropriate, under the terms of the Bill, to transfer the responsibility for contribution matters from the Department of Social Security to the Inland Revenue.

At Committee stage I raised a number of points in this context and, as I mentioned, we debated this also last Thursday. The amendment seeks to impose conditions so that the transfer should not take place from one department to another until the department from which the computer is being transferred has sorted out the substantial problems which it now emerges exist in the department. It seems clearly inappropriate to switch it from one department to another and from one Minister to another without the situation having been rectified. The amendment therefore suggests that it should not be done until the national insurance computer system, which is concerned with contributions, is fully operational; until all contribution records are fully installed on the computer; and until the payments as a result of those contributions are not more than one month in arrears.

Amendment No. 29 is somewhat similar but in a simpler form. It simply seeks to delay the date when the transfer takes place in order to give the Government an opportunity to put right what is obviously a serious situation.

I should begin, as on many previous occasions, by declaring an interest since some of these matters are related to pensions and I am a chairman of a company pension fund. Furthermore, I want to express our thanks to the noble Baroness, Lady Hollis of Heigham, for the courtesy she has shown in replying in correspondence to a number of points raised at Committee stage. It may be helpful to get some of those points on the record. Two in particular are quite simple.

First, confusion arose—largely as a result of my misunderstanding of the situation—as to whether the responsibility for these matters would be transferred from Department of Social Security Ministers to Inland Revenue and Treasury officials. The noble Baroness rightly pointed out that that is not so. "Treasury" in this context means the Lord Commissioners of the Treasury, which includes the Chancellor of the Exchequer and other Treasury Ministers. Incidently, it also includes the Whips. Whether they are qualified to deal with these matters I have some doubt; nevertheless that is the situation.

Secondly, the Minister gave an assurance, which I think is important, that, because the laws affecting the Inland Revenue are different from those affecting the Department of Social Security, no one will be made a criminal retrospectively as a result of these changes.

We want to clarify a number of points. Last Thursday, in Committee, I posed a series of questions. With her customary expertise, the Minister was able to reply to some of them on the spot; others remain outstanding. First, what is the situation regarding this computer in relation to others? If I understand correctly the Minister's answers so far, she is saying that this particular computer has gone down but that that does not affect the Inland Revenue's computer, or that for social security benefits. The Minister pointed out that that affects only half of the total expenditure of the Department of Social Security. If I understand the situation correctly, it follows that the other half—that is, half the social security benefits being paid—is apparently affected by the breakdown of the computer. The Minister shakes her head. I based that point of view on what she said in Committee. No doubt she will want to clarify the matter. We need to be clear about the exact relationship between the various computers.

Secondly, we need to be clear about when the computer went wrong. I understand that it was last June. However, we are not in the least clear about when the Government expect it to be put right. Meanwhile, there are considerable problems. People who might otherwise have expected to be paid pensions or increases in their pensions do not know where they stand. One of the reasons why we on this side of the House believe that the matter should be sorted out before the computer is transferred—indeed, before the functions of the Contributions Agency are transferred—is that we are concerned not only about whether the computer is wrong but also about what is being done to tell people what is happening. When I raised that question in Committee, the Minister said, "Well, there's a problem there: we don't know who the people are because the computer has broken down". That becomes a circular argument.

Although, as I understand it, the department has a helpline and it is possible for people to ring in, nonetheless no proactive attempt has been made to tell those affected what is going on. If I am mistaken on that, no doubt the noble Baroness will correct me. Some people are told that if they have problems, they can go on income support. Apparently, that is on a different computer. At least they will have that fall-back position, but clearly it is not satisfactory.

That brings me to the question not only of the number of people affected and the amounts, but of the particular groups. If I understand correctly, people who are already receiving their pension are not affected. However, people who are about to receive their pension but are not yet in receipt of it are not affected. Those affected also include those who asked for their pension payment to be deferred from one year to another. They receive a somewhat higher pension if that happens. However, having asked for their pension to be paid (having earlier deferred it), they may find that it is not paid for some months.

That, in turn, raises other issues. If they have not been paid, do they receive the uprating which we debated last week? In particular, are they to be compensated? I understand that they will receive a degree of compensation. It would be helpful for those people and the public at large to know what the compensation will be. How much will it amount to? Will it be taxable? To what extent will the rate of interest which will apparently be paid by way of contribution, because people have not been paid the pension to which they are entitled, compare with the rate of interest which the Inland Revenue charges those who do not pay their tax on time?

One associated problem is that people will not know whether to include on this year's tax form the increase or pension they were expecting or whether to wait until next year to include that information. Given the stringent way in which the self-assessment system has been introduced, I do not think that it is fair for people to be penalised for simply not knowing. What information has been given to the public about that?

The situation overall gives cause for concern. As far as the pure mechanics of the issue are concerned, I understand that the Public Accounts Committee in another place will probably take evidence today on the matter. However, we are concerned with a broader issue. Given that this situation has arisen, to what extent are the Government taking appropriate action both to compensate those affected and to ensure that they know what is going on? Until this is sorted out, there seems to be a strong argument for saying that it was not appropriate to go ahead and switch the whole system from one department to another.

Broadly speaking, that outlines the purpose of the amendments. As I have said, the alternative amendment to Amendment No. 1 is Amendment No. 29, which says, "Let's give it a year or so, by which time things will, we hope, have been resolved". It is important that the matter should be put right rather than put right fast or not put right because of the hurry. For those reasons, I beg to move.

3.15 p.m.

Lord Goodhart

My Lords, I rise to support the noble Lord, Lord Higgins. According to reports on the "Today" programme on Radio 4 this morning, people are losing up to £100 per week in SERPS. If that is remotely true, it is extremely worrying. It is clear that people are losing at least some benefits to which they are entitled. It would be useful at this point to hear from the Minister what action the Government intend to take to put right the problems with the computer. How long is that expected to take? What compensation will be paid to those who have suffered as a result of the problems?

Without suggesting that the amendment is an appropriate way of dealing with the problem because as an amendment I would not support it, it seems to me to be a useful way of raising the issue for discussion. I hope that the Minister will be able to make a statement which will, as far as possible, satisfy our concerns.

Lord Skelmersdale

My Lords, surely one of the rationales for the Bill which the noble Baroness gave at Second Reading was that at last the two computers—namely, the Inland Revenue computer and the Department of Social Security computer—can talk to each other. If one of them is down, that blows the whole idea out of the water. Therefore, I support my noble friend's amendment.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)

My Lords, the noble Lord, Lord Higgins, seeks through his amendments to defer the transfer of the Contributions Agency to the Inland Revenue until the new NIRS system is fully operational. As the noble Lord said, we also discussed the issue during our debates last week on the social security uprating and rerating orders. Therefore, as both the noble Lord, Lord Higgins, and the noble Lord, Lord Goodhart, have invited me to do so, I take the opportunity to give the House an update on current performance.

For those who are unfamiliar with the department's computer systems, a few words of background may be appropriate. The Contributions Agency has recently introduced a new National Insurance Recording System, known as NIRS2. The old NIRS1 system had to be replaced because it was ageing. I understand parts of that system were originally built in the 1960s and could not support future operational and legislative changes, in particular those arising from the previous government's Pensions Act 1995. So NIRS2 is a system ordered and specified by the previous administration, and it is necessary because of actions by the previous administration. Perhaps I may add that NIRS1, like NIRS2, was provided by Andersen Consulting. There is no implication that that was not an appropriate method of proceeding. If we had been in the position of the previous government, we too would have had to extend the computer system.

The new system is designed to handle payment of NICs, hold over 65 million individual contributions records, calculate contributory benefits, provide data and pay age-related rebates to pension schemes and providers. It goes without saying that this is one of the biggest systems in Europe, with over 14 million lines of computer software.

My right honourable friend the Secretary of State for Social Security has informed the other place of progress with the system on a number of occasions. Those reports have not sought to underplay the difficulties that there have been with the system; nor have I tried to do so in responding to noble Lords' questions. Our task has been to stabilise the system to enable its full operation to be available at the earliest point. We are now starting to see more of the system working. I hope that I can reassure the noble Lord that, while not everything is working smoothly, we are now planning the recovery. If noble Lords are content, I shall spend a few moments explaining the current position.

First, I want to put the problems in perspective. The problems have caused difficulties for the individuals involved, and I certainly do not want to minimise them. We very much regret that; but we should not overemphasise the scale of the problems. They have only affected contributory benefits—that is to say, the difficulties have not affected payments of benefits such as child benefit, disability living allowance and income support. I said "only", but noble Lords will appreciate what I mean. Similarly, they have not affected contributory benefits in payment before the system went live; indeed, they have only affected new claims. So, for example, over 10 million existing pensioners have been entirely unaffected by the changes. The obvious reason is that the new system was not in place fully to record the 1997–98 payments into NICs. It means that we are trying to make calculations for retirement pensions and widows' pensions which are based on, say, 40 years or 45 years of payments without having the benefit of up-to-date information regarding the last year.

That is the scale of the problem. There is a one-year shortfall of NICs information going into the system. However, we clearly have the information for the rest of those years. That is the degree of error. That is why—and I shall return to this later—for the most part, but with one exception that I shall come to, the degree of error is about £1 to £2 a week for contributory benefits. That is the effect of not having such information. If, as a result, anyone comes below income support, then his or her income support will be manually adjusted to float him or her up to a proper level of income.

If it is suggested that there have been subsequent overpayments, that can be adjusted slowly through the course of the year. In other words, the scale of the problem is the fact that we do not have accurate contributory information for what would be the last year before a claimant began to receive or sought to receive retirement or widows' benefits. Therefore, for the most part, that degree of lack of information, or the potential for error, is quite narrow. Without trying to talk down the problem, it is not that a computer has collapsed and people are not receiving their payments; indeed, that is not the issue. What has happened is that the new system has come on much more slowly than we expected and we have, therefore, not had full information at the point at which people's new claims have begun to be paid. So, in a number of cases, people may be receiving slightly less than they otherwise should and that is of the order of magnitude of £1 to £2 a week.

Perhaps I may put forward some statistics in respect of the above information. I shall start with the state retirement pension. Those affected were largely those who reached pension age after 5th April 1998—around 50,000 a month. In 97 per cent. of cases a pension calculation has been made based on the contributions record up to and including the 1996/97 tax year, and that rate is being paid. As I said, the problem is having secure information for that final year. That is when the computer was not really able to take on the information. All of those awards will be reviewed, without the need for the customer to ask, once NIRS2 is fully operational and 1997–98 contributions have been posted—that is say, put into—individuals' computer holdings.

Widows' benefits were similarly affected, although over 280,000 widows who formed the existing caseload in April have been unaffected. About 4,000 new claims a month were affected. In 90 per cent. of cases an initial award or emergency payment has been made using other information available. In cases where a full or interim payment has not been made and hardship exists, calculations can be done manually to provide the basis for correct payment. This has so far been done for 3,500 people.

I turn now to the current position. From 6th January of this year NIRS2 has been providing the necessary calculations for retirement pensions and widows benefits. So all new awards from that point should be made by the system in the normal way; in other words, the backlog problem runs from either March or June of last year through to January of this year. We are now discussing the best way of reviewing the cases of those who have been given interim awards of retirement pension over the past few months so that they can receive the correct rate of benefit, which, as I said, may have been, on average, an underpayment to them of £1 to £2 per week. If the retirement pension cannot be paid because the information is more volatile than that, or if it is paid at a reduced rate, the claimant is advised of the availability of income support.

The noble Lord asked last week, and again today, whether pensioners who have not yet received their pension and do not receive it until after April 1999 will get both the increase in pension for people who defer claiming and the uprated amount from April 1999. The answer is that where a claim is made but there is a delay in payment increments are not paid. However, when the award is finalised arrears are paid at the rates due for the relevant period. So someone who claimed benefit before April 1999 but does not receive it until after that date will get the uprated amount from April and be paid arrears at the applicable rate for the period before then. Therefore there will be no loss.

From 1st February we expect to be able to send claim packs to people approaching state pension age. Up to now we have been using data on the old NIRS2 system. That deals with retirement pensions, and widows' pensions where the problem relates to the last year of what may be a whole life's contributory record.

I now move on to contribution-based JSA and incapacity benefit. The problem here is much simpler because, for the most part, to be eligible one only has to have made two years' contributions and, therefore, the full array of records is not required. Moreover, there is usually an alternative source of information—namely the employer, because obviously at that point people are still in work.

I shall deal first with jobseeker's allowance. From 9th November we have had the electronic link between NIRS2 and the jobseeker's allowance computer system up and running. That has meant we have been able to pay all new and repeat claims to JSA. Before that, between 20th June and 9th November, about 1,063,000 JSA claims were disrupted by the problems with NIRS2. Ninety-five per cent. of those were paid using the contributions record from the Departmental Central Index, which is our back-up system, using information supplied by the customer, by emergency procedures such as the faxing of information, or by the award of an interim payment.

I turn now to the fourth and last of the contributory benefits; namely, incapacity benefit. Since 18th November NIRS2 has been providing information to Benefits Agency offices to enable them to make payments of incapacity benefit. Before this, as with JSA, 95 per cent. of claims were paid using contributions information from the Departmental Central Index, information supplied by the customer or by the Benefits Agency using faxed information available to the Contributions Agency from NIRS.

Those claiming retirement pensions, widows' benefits, incapacity benefit and jobseeker's allowance have been issued with an entitlement notice explaining the situation with initial payments and a letter where emergency payments are offered. Perhaps I may emphasise here that, if anyone seeks information about his or her situation, it is not handled by the NIRS2 computer, so we do not get into that "black hole" to which reference has been made. The information will come back to people in the usual way. I have checked on the situation and it is the case that we have made contact with CABs, Age Concern, Scottish CABs, local authorities and the pensions industry to ensure that the fullest possible information is sent out to people. As I said, any information that people seek will be handled in the usual way and does not depend on the functioning of NIRS2. So there should not be a problem with any correspondence in that situation. However, if there is, obviously I would be glad privately to receive information from the noble Lord to that effect and would of course look into the matter.

The noble Lord also asked what compensation is being made for delays. If one area of the computer is for contributory benefits, the other is to make payments of age-related rebates to pension providers. As at 1st January, £1.4 billion has been paid, which is approximately 60 per cent. of the payments made by this time last year. We expect most of the balance to be paid by March, although some payments in April and May are possible. Again, to keep the matter in proportion, age-related rebates represent between a 3 per cent. and a 9 per cent. age-related rebate in addition to the normal NICs. The normal NICs information would go through to NIRS—the normal rebate. The degree of discrepancy is between 2.5 per cent. and 9 per cent. and is age-related. Of course, that will be paid subsequently when we have the full information to which I referred.

The average loss, if I may put it this way, is about £2.50 a week. Again, I do not seek to minimise the situation. We are talking about a limited number of people; indeed, we are only talking in figures of up to £100 where people are considering whether they should be contracting back into SERPS out of a personal scheme by virtue of the age-related rebate. The potential loss there goes up to about £100 a week and affects only a tiny number of people. For the most part, it is simply that between 91 per cent. and 97 per cent. of the NICs rebates are being rebated to the employer. The area of the problem is that last little bit between the 2.5 per cent. and the 9 per cent., which is age-related. We expect all that to be fully in place by April or May.

3.30 p.m.

Lord Goodhart

My Lords, the noble Baroness has spoken about retirement pensions and an average drop of £1 or £2 a week. Does that include SERPS or is SERPS a different case?

Baroness Hollis of Heigham

My Lords, it is a different case. With retirement pensions, we are talking about newcomers into the system for the state basic old age pension. That is where the £1 to £2 figure I gave comes in. A SERPS problem would be in addition to that.

Lord Goodhart

My Lords, will the Minister tell us the figures for SERPS losses and how they will be made up?

Baroness Hollis of Heigham

My Lords, the average loss for a normal SERPS payment would be about £2.50 a week as opposed to the £1 or £2 per week for the basic old age pension. It can leap up to £100 in exceptional cases where there is a question of whether a person should be opting back into SERPS from a personal pension, or other movement. We are talking about a loss of about £1 or £2 from the retirement pension and an average of about £2.50 or thereabouts from the SERPS element. All of this will subsequently come back into payment and be made good. If, as a result, this brought someone on retirement pension to below income support figures—it would not of course apply to someone on SERPS—we would do our best to get information to ensure that they are floated up to the income support level and make any subsequent adjustment. Some 30,000 people have been assisted in that way.

The noble Lord, Lord Higgins, pressed me on what compensation is being made available in respect of delays. Starting with age-related rebates, compensation is being paid at the rate of 0.5 per cent. of each individual payment for each month of delay. That is based on advice from the Government Actuary on a reasonable rate of compensation given current market trends. It is being paid cumulatively, and will continue to be paid until the backlog of payment is cleared—in other words, in the first month it is 0.5 per cent., in the following month it is 1 per cent., in the next month it is 1.5 per cent., and so on.

The noble Lord pressed me on how this correlates with the amount of repayment for income tax. The Inland Revenue rate for overdue tax is 8.5 per cent.—that is what it charges the customer—which is calculated as the equivalent of a borrowing rate. Obviously the taxpayer who fails to pay effectively has that money on deposit for himself or avoids having to pay back a debt. For overpaid tax—that is money owed to the individual by the Inland Revenue—the current rate of interest is 4 per cent. That is a net interest rate when compared with the rate paid by a building society. The compensation figure that we are suggesting is 6 per cent., which is more generous than that charged by the Inland Revenue. It is up 0.5 per cent. per month cumulative.

Lord Higgins

My Lords, I am most grateful to the noble Baroness. The arithmetic is very complicated. The noble Baroness said that the compensation rate is 6 per cent. Off the top of my head, I have a little difficulty in relating that to 0.5 per cent. cumulatively. I wonder whether it is not only cumulative but compound interest. Presumably the noble Baroness is saying that the figure of 6 per cent. should be compared with the 8.5 per cent. of the Inland Revenue.

Baroness Hollis of Heigham

No, not at all.

Lord Higgins

My Lords, if we are agreed that 6 per cent. is the relevant figure for the compensation in terms of an annual rate—an APR, perhaps—then presumably it should be compared with the 8.5 per cent., which is the amount charged if late payment is made. But I am open to persuasion.

Baroness Hollis of Heigham

My Lords, for once I think I can say that the noble Lord is incorrect. For example, if you are a late taxpayer, you are deferring paying a debt. If you had to borrow money to pay that debt, you would be borrowing at 8.5 per cent in the markets, whether it be by way of a mortgage or other form of loan. That is why the Inland Revenue will charge 8.5 per cent. If the money is owed to you, had that money been paid on time and been in your building society account or a government bond, there would be a return of 4 per cent. net. I should emphasise that these figures are tax free; the compensation is ex gratia. I trust that the noble Lord is as satisfied as he can be with that explanation.

Compensation for those claiming benefits, as opposed to the age related rebate compensation, is covered by normal departmental rules. The rules state that there must be clear and unambiguous departmental error—NIRS2 delays would constitute such error; the delay must exceed an indicator period set for each benefit; arrears must be at least £100; and the amount of compensation due must be at least £10. Compensation will be paid when full national insurance information has been provided and each benefit has been reviewed, with arrears being assessed and paid. Claims for compensation will not need to be made; cases will be considered automatically.

Lord Higgins

My Lords, this subject is a little difficult to deal with across the Floor. If I understand the noble Baroness, the figures we were discussing a moment or two ago are in relation to age-related rebates and so on. Clearly the vast majority of these people are national insurance pensioners whose arrears, I hope, are not likely to amount to more than £100. On the basis of what the Minister is now saying, they will receive nothing at all.

Baroness Hollis of Heigham

My Lords, it is quite the contrary; they will certainly get their money. The question is whether they will get compensation, which is different. It depends whether they meet the criteria. They will certainly get their money, but the question is whether their losses are such that they are entitled to compensation over and above the arrears payment. They will be paid in the normal way according to normal DSS guidelines, and I have laid out those guidelines for the noble Lord. As it is a departmental matter, it is open to the Secretary of State to review those guidelines. Certainly there is no intention at the moment of which I am aware to depart from them.

The problem with letters arises in relation to the NIRS2 problem with correspondence. The machine needs to be working in order to answer problems as to why the machine is not working, if I can put it that way. As far as I am aware, it only applies to some of those NIRS age-related rebate issues, which traditionally have been generated by the computer. It does not apply to the vast field of contributory benefits. If the noble Lord is concerned about some cases, we shall be very happy to look into them.

I turn now to the way in which NIRS2 processes contributions. NIRS2 has processed more than 62 million contribution items submitted by employers for employees who have paid class 1 contributions in the 1997–98 tax year. As at 31st December, around 29 million items had been posted to account. We expect the great majority of this year's end of year returns to have been posted to individuals' accounts and be in use for benefit purposes by the end of March when the transfer takes place. The noble Lord will also recognise that there are always some contributions which, for one reason or another, are received after the end of the year to which they relate. So technically the noble Lord's amendment could defer the transfer indefinitely.

The normal quarterly and monthly billing and debiting arrangements for self-employed people are also working effectively now.

As I am sure your Lordships will agree, the task now is to catch up as much as possible of the outstanding work, particularly the remaining end-of-year returns and contracted-out pension rebates, and to roll out the remaining arrears of the system—in particular some of the functions which support the pensions industry, for example, in the winding up of pension schemes. The noble Lord asked both today and on a previous occasion, when we expect the whole system will be up and running with the problems resolved. Our current plans and those of Andersen Consulting are that the whole system will be available by the end of the financial year; that is, by the end of March. So in answer to the noble Lord's amendment, NIRS will be operational in any case by the time the Contributions Agency transfers to the Inland Revenue.

I hope that your Lordships will forgive me for going into this in some detail. I do not wish to belittle the problems but the message is very much that the system has not collapsed. It is not, as the noble Lord, Lord Higgins, said, a computer that has "gone down". That is not appropriate. Had NIRS1 gone down, that would have been the case and would have affected current payments. But we are talking about a new system that is being carefully piloted. Its introduction is now well under way but it is being introduced at a slower pace than the previous administration contemplated in their PFI contract with Andersen, and at a slower pace than we would have hoped because of the difficulties that we have been discussing today.

Turning to the amendments before us, the noble Lord has failed to make a case as to why the transfer of CA to IR should be dependent on NIRS2 being fully operational. The judgment we have to make is whether the risk of creating additional disruption to NIRS2 is sufficient to defer the whole transfer programme. Or, to put it the other way, we would want to be sure that deferral of the transfer significantly improved our chances of getting NIRS2 fully operational much more quickly. I do not see anything to suggest that that is the case.

The first reason, as I have said on a number of occasions, is simply that the transfer does not impose any significant additional burden on the system. The changes needed are relatively minor, largely to ensure that forms are correctly labelled and written; for example, changing an address at the top of a piece of paper. The second reason is that we have decided that those responsible for managing the system and managing the negotiations with Andersen Consulting will transfer to the Inland Revenue. It will be the same people doing the same work to get the system fully functional. Therefore there will be no loss of experience or knowledge. The recovery plans will continue across the Benefits and Contributions agencies and will be overseen by senior officials from both the Department of Social Security and the Inland Revenue, as now.

The third point is that it is not as if problems with the NIRS2 system have been identified only at this late stage. They were first identified last summer and we have therefore been able to plan the stabilisation and recovery arrangements for NIRS2 alongside the plans for the transfer. These are now well established alongside each other. Therefore we have been able to plan around any issues that the transfer had created. I am confident that the NIRS2 recovery programme has taken full account of the impact of the transfer.

The final point is that plans for the March changes to the system are well in hand. These involve changes other than those relating to the transfer but which need to be made at the same time. There could be additional risk and additional cost if some of the changes go ahead in March but not those relating to the transfer. I am sure that the noble Lord would not wish to add even more complexity to the problems we seek to resolve in partnership with Andersen's. Our judgment therefore has to be that proceeding with the transfer makes little difference to the NIRS2 recovery programme. Whatever occurs, the same issues must be addressed or be handled in the same way.

There is no question of our facing a choice between the transfer and paying money to those who need it. The solution proposed in the noble Lord's amendments carries its own risks. Bringing the Contributions Agency and the Inland Revenue together in one organisation has been welcomed by business as it will enable business and individuals to sort out their tax and contributions questions through a single government department. Business is anxious for us to go ahead and get the transfer up and running so we can start delivering those benefits. The Institute of Directors refers to this in a letter from which the noble Lord quoted the other day. Contributions Agency staff are keen to get on with working in a new organisation. Deferring the transfer would not only add to the complexity but would also be demoralising both for business and for staff.

I am therefore not convinced that the difficulties that have been outlined with NIRS2 are sufficient to justify a deferral or that deferral would have any effect on those difficulties. Indeed, the additional uncertainty would probably add to them and lead to a risk of even greater disruption. In the light of all that information—I apologise to the House for taking so long to reply—I urge the noble Lord to withdraw the amendment.

Lord Higgins

My Lords, far from apologising—

Lord Avebury

My Lords, I wish to ask the noble Baroness one question before she sits down. Will the fees paid to Andersen's enable the Government to recover any of the costs which are now being incurred in compensation payments to the victims of the delay? Will they be able to get this money back from the contractors?

Baroness Hollis of Heigham

My Lords, obviously some of this information is commercially sensitive, as I am sure the noble Lord will understand. However, my understanding is that Andersen's has already paid some moneys to that effect. Basically, we get compensation from Andersen's if, first, there is a fault established; secondly, if there has been a loss, as opposed to a cost—which is rather different—and, thirdly, if Andersen's has failed to rectify that or has failed to use its best efforts. My understanding at the moment is that we are paying Andersen's about £39 million in total over seven years for the NIRS service. In addition we shall have costs of about £90 million over the seven-year period for training and other such matters. That brings us to a total cost of about £134 million. If Andersen's is established to be at fault, it would be liable for that. However, that is obviously a matter for commercial negotiation.

3.45 p.m.

Lord Higgins

My Lords, I was about to say that the noble Baroness certainly should not apologise to the House for giving what is obviously a pretty comprehensive reply. However, one feels bound to say that it has taken a long while—from Second Reading to Report stage—for the full scale of this problem to emerge. However, at least we have much of the information on the record.

It is rather surprising that there does not appear to have been any serious attempt by the department—other than to react to incoming telephone calls—to let people know what is happening. One would have thought that as there appear to be problems with the computer system, some kind of publicity campaign in the press or elsewhere might have been helpful. Indeed it might still be helpful in one respect; namely, with regard to what people should do in respect of their tax returns. As the matter we are discussing is about to be transferred to the Inland Revenue, perhaps it might be appropriate for that department to tackle this matter. Self-assessment forms could inform people what they are supposed to do in this regard. I believe that that was the only point which the noble Baroness did not cover.

I was a little puzzled when the noble Baroness said that people are being paid but not the right amount. I am not clear why it was not possible to tell them that. As regards compensation, we seem to be in an extraordinary position. The noble Lord, Lord Goodhart, pointed out that a particular group of people will get compensation. However, those at the lower end of the income scale who are not in a company scheme but receive the ordinary national insurance pension—although not as much as they are entitled to—appear to be caught by the normal rules which stipulate that one is not compensated if the amount involved is less than £100. Therefore there is the paradoxical situation where the better-off are compensated, but the less well off are not. That does not appear to be a sensible arrangement.

The rules may be appropriate in individual cases where the department makes a mistake but one would have thought that the Secretary of State in consultation with the Treasury, should consider whether the normal rules ought to apply, or whether some adjustment ought to be made. The reality is that the pensioners at the bottom end of the income scale have not been getting the money to which they are entitled. If I have understood the noble Baroness correctly, they will not be compensated in any way whatever.

Baroness Hollis of Heigham

My Lords, anyone who has been underpaid will have their payments fully made. The question is whether they get compensation in addition to the full payment of their arrears.

Lord Higgins

My Lords, they will get the amount to which they were entitled, but they will get it late and they will be out of pocket in the meantime. The Treasury has gained and the pensioners have lost. It is as simple as that. There is a problem here. At the risk of complicating the issue, I believe the noble Baroness said that the increments are also not being paid.

We have several different animals here. We have the increase from the uprating and we also have what I understood to be an increment; namely, the extra amount people get if they defer their pension by a certain time. Perhaps we should look at this matter in more detail to see whether we can clarify it. It now looks as if people will not get the increased amount which they should have got if they had deferred drawing their pension for as long as the actual delay in payment. I shall try to spell that out a little more clearly. If someone had asked for his pension to be paid last July, for example, but was not paid it, will it be increased as if he had volunteered to defer the payment of his pension? Leaving compensation and uprating on one side, I am not clear as to whether, because that person has been out of pocket meanwhile—this may be an alternative to compensation as regards people drawing deferred pensions—his permanent pension will be increased as if he had volunteered to delay the payment for a year, for example.

These are complicated matters. There is a strong reason for the Government making much clearer than they have to the public what is the situation. We had a problem, which the noble Baroness rightly did not seek to minimise, on a significant scale but there has been no serious attempt to tell people what actually happened. Nonetheless, in the light of the noble Baroness's reply—to which we may or may not wish to return on Third Reading—I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 2:

After Clause 3, insert the following new clause—