The problem-dogged computerised National Insurance Recording System (Nirs2) may not be operational until June 2001 - almost three years after it was supposed to be fully on-stream.
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The system has already cost the taxpayer more than £35m in compensation payments, the National Audit Office revealed, as it raised concerns over the National Insurance Fund Account for the 13th year running.
It said the Department of Social Security and the Inland Revenue were considering a claim against the main contractor, Andersen Consulting, over delays in delivery of the system.
Before taking a final decision, ministers are considering legal advice, the firm's "considerable efforts" to get the system functioning properly and the supplier's commitment to the future needs of the Revenue and DSS .
Even before the Nirs2 fiasco, computer problems over National Insurance payments have been a repeated feature of the 13 consecutive qualifications of the accounts - widely believed at Westminster to be a record.
Controller and auditor general John Bourn said that because of "problems with IT systems, some elements of the estimated outstanding debt are unreliable".
He said that although the Inland Revenue and Andersen Consulting had made progress, much remained to be done and the system might not be fully operational, in the worst case, until June 2001.