Audit Office blames incapacity benefit account errors on IT problems dating back to 1998.
HM Revenue and Customs is trying to resolve errors affecting 1.6 million incapacity benefits accounts caused by IT problems dating back eight years, according to the National Audit Office.
A report by the public spending watchdog, published last week, also highlighted delayed payments to pension providers and problems measuring the number of suspended national insurance files.
The difficulties add to the IT challenges facing HMRC, which include poor quality data and overpayment of tax credits.
"The position is utterly shambolic," said Liberal Democrat shadow chancellor Vincent Cable. None of these difficulties were disclosed when the government was pushing through legislation to merge the Inland Revenue and Customs and Excise, he said.
"One issue which needs to be addressed is whether it is wise to press ahead with further administrative reorganisation while these massive technical problems remain unresolved."
Problems with incapacity benefit date back to the introduction of the Nirs2 national insurance system in 1998.
In 1995, Whitehall awarded Andersen Consulting, now Accenture, a £150m contract to build Nirs2. The NAO report, National Insurance Fund 2004-2005, said the move to Nirs2 in 1998 resulted in a range of "conversion problems", including some around incapacity benefit recording.
The NAO said that despite efforts to overcome data conversion problems, by 2005 1.6 million accounts had discrepancies that required investigation.
"HM Revenue and Customs and the Department for Work and Pensions have been able to identify the ways in which customers might be affected but, as at October 2005, were not able to estimate the number affected or the financial impact on customers," the report said.
The report noted that inaccurate records could affect some incapacity benefit and job seeker's allowance payments. "The department has not estimated the number of benefit awards affected and the likely financial effect. The operational impact of this work, as well as the resource requirement, is a major concern for the Department for Work and Pensions," it said.
Paul Gray, national insurance fund accounting officer and deputy chairman of HMRC, said, "We aim to put together options to correct the situation in the summer of 2006."
A spokesman for HMRC said the report recognised the ongoing work to improve the quality of employer-provided national insurance data. "HMRC and the Department for Work and Pensions have discovered data matching problems with computer records. The departments are working together to fully resolve the issue and ensure that everyone receives what they are entitled to."
Challenges facing the Revenue
- Ageing core systems
- Systems provide no overview of 20 million PAYE taxpayers
- Mounting backlogs of work
- £2bn in tax credit overpayments
- Making 12,500 staff cuts by 2008, investing in new IT with no increase in budget
- Wrong information and tax codes for millions of taxpayers
- 100 million "homeless" data items such as national insurance payments in "suspension files"
- Unpaid tax estimated at between £30bn and £50bn
- Serious lapses in professional practice, such as accidentally deleting active tax records
- Merging systems from the Inland Revenue and Customs and Excise.