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Has the cost of Universal Credit really risen from £2.2bn to £12.8bn – No!

June 4, 2013

2920fbsHas the cost of Universal Credit really risen six fold from original estimates?

Let me scotch this misunderstanding which is spreading around the Internet like wildfire here, here, here and so on…

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).

The £12.8bn figure (actually £12.845bn)  is explained here as being the whole-life cost which DWP has clarified as being until April 2021 (Source here).

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…

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From → Agile Governance

2 Comments
  1. A lot of people on Twitter are having difficulties understanding this.

    Let’s try it a different way:

    If I bought my car for £10k and petrol, insurance etc are £30k over 10 years. Is it a £40k car?

    Brian

  2. … and if I keep it running another 10 years at an additonal £30k, will the cost of the car have risen to £70k?

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