The move is part of the Department of Health's wide ranging review of arm’s-length bodies. This will see the number of agencies slashed from 38 to 20 to cut bureaucracy and save £500m a year in costs.
But as IT is now seen as a cornerstone to improving the NHS performance, the government has announced the formation of two IT-related bodies.
The Health and Social Care Information Centre, will, the government said, reduce the burdens on front-line users by co-ordinating information requirements across a wide range of organisations.
Some NHS IT managers have complained that they need more help as they try to integrate their organisations within the parameters of the national programme for IT.
The Health and Social Care Information Centre will take on the statistics and information management functions of the NHSIA.
The other body will be an executive agency formed out of the national programme for IT. This will be constituted for a three- to five-year period while the biggest expenditure takes place. It will incorporate the IT functions of the abolished NHSIA.
Health minister John Reid said, "Reducing the cost of arm's-length bodies will generate resources that are the equivalent of four new hospitals or 20,000 more nurses by 2008.
"The arm's length body sector has done a lot of good work, but it has grown over several decades and no longer meets current health and social care needs or those of future generations."
The expenditure for 2003/4 for all NHS arm's-length bodies was £4.8bn, which includes operating costs of £1.8bn. They employ about 25,000 staff.