Social Security (National Insurance Credits) Amendment Regulations 2007

My Lords, I thank the noble Lords, Lord Skelmersdale and Lord Kirkwood, for their contributions today. I understand that the mechanism of the prayer is to be able to debate the issue rather than to seek seriously to disrupt the regulations. I hope that that is the case. I shall start by putting matters into context. Without being complacent about the issue that has arisen, there are 65 million active national insurance accounts, 11.7 million customers who receive the state pension, and 2.7 million individuals who receive incapacity benefits and credits. That is the scale of the DWP’s customer base. I have listened to all the points made on the Motion to annul the regulations, which among things legitimise certain payments of the state pension, incapacity benefits, jobseeker’s allowance, bereavement benefits and widow’s benefits. These benefits are invariably paid to vulnerable people or to people with a limited income. The 31st report from the Merits of Statutory Instruments Committee has drawn the regulations to the attention of the House on the grounds that they give rise to issues of public policy likely to be of interest to the House, and that it may wish to probe the cost of the flawed computer system to the public purse and how the error came about; exactly the issues that have been raised this afternoon. The reason for the incorrect calculation of these benefits is the mismatch of data about the period of incapacity and the award of national insurance credits. The DWP is responsible for administering claims for incapacity benefit for which national insurance credits are awarded for the period in which the person cannot work. The DWP computer records the period of incapacity, and the HMRC computer records the awards of the credits. It became clear that discrepancies existed between the data held on these two computer systems, and this was picked up by the National Audit Office in its report on the National Insurance Fund for 2004-05. The error arose, a point pressed by the noble Lord, Lord Kirkwood, as a result of the conversion of data held on the first national insurance recording system, NIRS1, to the second system, NIRS2, in 1998. The IT fault was exaggerated by a breakdown in the supporting business processes intended to resolve discrepancies between data held on the DWP computer and the NIRS2 system. I apologise for the error and its ensuing consequences. The DWP has worked with HMRC to resolve both the IT and business processes, and I can assure the House that the IT problem has been resolved since November 2005. New instructions have been issued to DWP staff setting out the actions that must be taken to rectify customers’ records when mismatches occur. The House will be aware that a Written Ministerial Statement was made by my honourable friend James Plaskitt on 23 July explaining the background and setting out how the Government intended to correct the affected cases, both of overpayment and underpayment. It was clear that the underpaid cases would have to be corrected, but we have to consider carefully how we deal with the overpaid cases, a point again pressed by the noble Lord, Lord Kirkwood. The sole reason for the overpayment was the mismatch of the data recorded on two government computers. This can and should be classified as official error and therefore in this instance it would have been inappropriate to seek to recover any of these overpayments. I should say to the noble Lord, Lord Skelmersdale, that this is a completely different situation from tax credits where, as we have debated before, what are labelled as overpayments come about as a consequence of how the calculation proceeds under the rules.