The Efficiency of National Insurance Administration

Audited Entities

• HM Revenue and Customs (HMRC)

Audit Objective(s)

• This report looks at how HM Revenue and Customs has administered its National Insurance (entitlement to certain retirement and working-age welfare benefits) responsibilities.

Audit Scope

• The report is focused on efficiency in the use of resources since 2006-07. It looks in detail at the Contributions Office and considers the roles of other units administering National Insurance: the customer contact helplines handling National Insurance enquiries; and the Debt Management & Banking and Local Compliance directorates.

Audit Criteria

• Not available.

Main Audit Findings

• HMRC has taken significant steps to improve the efficiency of National Insurance administration but it needs to demonstrate more clearly that it is achieving value for money from the £343 million spent on this work.
• The highlights of the change achieved include the significant reduction in the number of staff deployed, action taken to require employers to communicate with HMRC electronically and examples of increased staff productivity in the Contributions Office. These are significant achievements, not least as there have been no significant system failures during the period of change.
• However, HMRC is achieving some but not all of its operational targets, a number of long-standing data accuracy issues persist and it has achieved limited progress in implementing efficiency initiatives involving more than one operating unit. Better information on the impact of operational changes and on how units interact with each other would allow HMRC to secure further efficiency savings.

Audit Recommendations

• To help maximise efficiency in National Insurance administration HMRC should develop its approach in two ways. It should give priority to applying PaceSetter principles to whole processes, encouraging operating units to work together to secure efficiencies. HMRC should also give renewed effort to maximising the value from resources applied to corrective work, either by dealing with root causes or applying priorities for securing the accuracy of the National Insurance database most cost-effectively.
• To inform decisions on future design of activities, especially the mix between staff and IT support, HMRC should at regular intervals, and not less than annually, determine the full costs incurred on individual activities, within the Contributions Office and across other operating units.
• Where the mix of work varies significantly from year to year for individual activities, HMRC should consider adopting a system of unitisation, which grades the complexity of work into standard units of processing time, to enable comparisons between years.
• Notwithstanding its strategic approach to administering National Insurance, HMRC should set guidelines to the operating units on increasing efficiency over the next three years. The guidelines should specify the areas of investment that should have priority; which underlying problems should have greater attention; and where operating units should endeavour to work more closely.
• Although there are presently very limited funds available for major IT enhancements, HMRC should consider how individual administrative procedures might undergo a more fundamental change over the longer term to achieve optimum efficiency. It should also consider the opportunities for reducing incorrect or incomplete incoming data and for exerting greater control of how work is received, with special attention to further reducing the use of more costly paper-based processes.

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