Has the cost of Universal Credit really risen from £2.2bn to £12.8bn – No!
Three reasons not to get agitated by this ‘news’:
1. The time periods are different
This is quite simple: the figure of £2.2bn is the cost of Universal Credit up to April 2018 (Source: Table on page 48 of the HM Treasury 2012 Policy Costings page http://cdn.hm-treasury.gov.uk/as2012_policy_costings.pdf).
2. As the running costs of Universal Credit go up, the running costs of the benefits it supercedes go down!
Stuart Adam of the Institute for Fiscal Studies explains this quite simply:
“If most of the £12.8bn was the one-off cost of setting up UC, that would seem pretty eye-watering. On the other hand, if most of the £12.8bn were paying salaries of DWP staff who would otherwise have been administering the old benefits anyway for around the same cost, that would seem deeply uninteresting.”
Yes – if you are thinking of trading in your old car for a new car you would still expect to be buying fuel…
3. But £2.2bn still sounds like a lot of money to build a computer system, doesn’t it?
The actual cost of all the IT development, testing and staff training work etc. in 2012-13 has been by stated by Chris Grayling in Hansard to be about £250m. This does not explain how much was spent in the previous two years, but we do know from a Freedom of Information request that about £350 was spent in the project up to the end of 2012. These are development costs and come from what is called a “DEL” budget.
The running costs of paying out the benefits to claimants once scheme starts up dwarf the staff costs in the DEL budget – the payouts come from what is called a “AME” budget.
You can think of DEL being the cost to buy a car, and the AME being the cost of fuel, insurance, servicing etc. (In fact AME stands for Annual Managed Budget).
So DEL + AME (until 2018) = £2.2bn
Or DEL + AME (until 2021) = £12.8bn
Not too complex to understand.
P.S. To take the replacement car analogy further – is the new car (Universal Credit) going to really save £400m a year when it replaces the old car (6 seperate benefits)? Lord Freud has quite literally signed-off here on £700m of benefit from the switch at an overall cost of £300m a year…