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National Insurance Contributions Deficiency Notices

Volume 405: debated on Friday 16 May 2003

The text on this page has been created from Hansard archive content, it may contain typographical errors.

The decision to suspend National Insurance Contributions deficiency notices for the years 1996–97 was taken five years ago in 1998 by the Contributions Agency, when it was part of the then Department for Social Security.No Minister was consulted or informed of this decision at the time the decision was taken in 1998. In fact, Ministers were informed of this decision in March this year.As soon as Ministers were informed, I instructed the Inland Revenue to publish a statement on their website informing people of this suspension, which they did on 5 April 2003, and I informed the House of Commons by written answer on 11 April.In addition, I took action to:

protect the position of those who choose to make voluntary contributions by suspending the six year rule;
ensure that the six year rule will run from the beginning of this financial year so that people affected have the same amount of time to make contributions as they would have had if they had been informed earlier;
freeze the contribution rate at the rate that would have applied at the time, so no one has to pay more than they would have to at the time;
ensure that people receive a consolidated deficiency notice to enable them to make an informed decision.

I have been informed that the Contributions Agency took the decision to suspend issuing deficiency notices as a result of the serious problems they were experiencing in the introduction of the NIRS2 computer system, dating back to 1996. It was intended to be a temporary measure to clear the backlog of work created by these problems, but no plan was ever put in place to resume issuing them.

As the Inland Revenue statement of 5 April, and my written answer of 11 April said, to ensure that no-one missed out from being able to pay voluntary National Insurance contributions for the years from 1996–97, I immediately instructed the Inland Revenue to extend the normal six year time-limit in which voluntary contributions can be made.

Under the normal rules, the latest deadline for payment for 1996–97 would have been 5 April 2003. However, as I announced in April, because deficiency notices were not sent out the April deadline will not apply.

We have therefore stopped the clock on the time limit for payment, and the six years will start from the beginning of this financial year. So for the years 1996–97 to 2001–02, people will have up to 5 April 2008 to fill in any gaps in their National Insurance record if they wish. Everyone will be given as much time to pay as they would have had if the notices had been issued in the normal way.

In addition, as we said in April, I have instructed the Inland Revenue that anyone affected must be allowed to pay their voluntary contributions at the rate that would have applied in the year that their contributions were deficient, rather than the current rate.

The Inland Revenue will publish details shortly of how it plans to issue deficiency notices in respect of the years since 1996–97. These notices will tell people if they have any missing contributions in those years, and what they can do to fill the gaps in their contribution record if they choose to do so.

I also announced in April that each individual affected will be sent a consolidated deficiency notice for any years since 1996–97 in which they may have made insufficient contributions, rather than a succession of separate notices, so that they could make an informed decision as to whether it was in their interests to pay voluntary contributions.

These notices will not be a demand for payment, but will inform people that they have the option to pay voluntary contributions in order to make up their contribution record if they choose to do so.

Historically speaking, in the years prior to 1998, when deficiency notices were issued only about 4 per cent. of these resulted in people choosing to make voluntary contributions.

In addition, the pension rights of those caring for children and receiving Child Benefit, and those who care for a dependent relative at home and receive Carer's Allowance, are protected. Credits are automatically awarded when people claim incapacity or unemployment benefits. None of these groups will need to pay any voluntary contributions.

When I was informed of the full extent of this issue, I immediately asked the Inland Revenue to carry out an inquiry into why the decision to suspend the issue of deficiency notices was taken, why ministers were not consulted or informed at the time, why the issue of deficiency notices was not resumed after the NIRS2 computer system was stable, and why ministers were not informed for six years.

The inquiry will report by end of this month.

I will continue to keep the House fully informed of any further information on this matter.