The government’s recent review of major projects revealed that the flagship Universal Credit welfare programme will cost nearly six times more than previously billed.
The Department for Work and Pensions (DWP) said Universal Credit will cost £12.8bn – not the £2.2bn figure that has previously been claimed – because it needs to run existing benefits in parallel as it brings in the new scheme.
The Cabinet Office Major Projects Authority Annual Report revealed the whole-life cost of Universal Credit to be £12.8bn, over £10bn more than DWP said it would cost when it put the programme before Parliament in 2010.
DWP said in a statement that the £12.8bn would cover initial capital and resource costs, including the IT system and the administrative cost in people and buildings of running Universal Credit in parallel to the six existing benefits it is intended to replace. It also included recurrent costs such as IT maintenance and staff to run the new benefit system until 2021.
"This figure covers the estimated costs for developing and operating Universal Credit over 11 years, including staff costs, IT and other administrative costs," said DWP in a statement.
"However, it does not take into account the savings that will be generated by replacing the current complicated benefit system with the simpler and more streamlined Universal Credit (UC) system.
"There are, of course, costs that come with setting up an entire new benefit, including staff costs and all the administrative costs that come with that. Remember that during the development of UC, the other benefits continue as usual, so a separate resource would be required for UC."
The department added: "We remain within our £2bn budget for upfront development and delivery costs for UC within the spending review period (2011-2015).”
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Costs could reach £12.8bn over life of Universal Credit
Stuart Adam, senior research economist at the Institute for Fiscal Studies, said: "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."
DWP insisted the entire £12.8bn was necessary solely for Universal Credit. It refused to break the figure down further.
The DWP had led Parliament and the public to expect Universal Credit would cost £2.2bn.
Chris Grayling, then minister of state for employment, told Parliament on 22 March last year: "The 2010 spending review settlement included funding of £2bn for the period 2011-12 to 2014-15.
"This is intended to meet all the costs of introducing Universal Credit, including any increases in benefit expenditure, additional benefit administration costs in the transition period, the costs of IT development and implementation, communications, staff training and programme management."
Mark Hoban, who succeeded Grayling as employment minister, repeated the same on 1 November 2012.
The spending review said on 22 November 2010 it would take two parliaments to implement Universal Credit. It put aside £2bn to set Universal Credit up between then and 2015. DWP confirmed this plan in its November 2010 Universal Credit whitepaper.
The department did not at the time say how much Universal Credit would cost in total. It said £2bn had been set aside as part of a DWP settlement to fund implementation of Universal Credit. It has subsequently been taken and repeated that Universal Credit would cost £2bn.
Numerous experts were approached by Computer Weekly, but none had heard of the £12.8bn figure or that there was a whole-life cost of Universal Credit that was different to the widely repeated £2bn.
The Institute of Fiscal Studies, the National Audit Office, research firms Kable and TechmarketView, and shadow employment minister Stephen Timms were not aware of the full-life cost of Universal Credit.
The timescale for Universal Credit seems to be slipping fast
Shadow employment minister Stephen Timms
Timescale slipping fast
"These figures are new to me,” said Timms. “The timescale for Universal Credit seems to be slipping fast. In November 2011, a press release quoting Iain Duncan Smith said a million people would be receiving Universal Credit by April 2014.
"Then [DWP] refuses to make any estimate of this. Only a year ago, last May, it said all new claims to the old benefits would end by April 2014. Now it won't put any date on that milestone."
DWP has always maintained that the full roll-out of the Universal Credit system would take until 2017. This would be two years after the current spending round and the £2bn set aside for development of Universal Credit.
Despite its public statements, DWP had included a whole-life cost for Universal Credit of £13.8bn in its 2011/12 annual report and accounts, and in its 2012-15 Business Plan, published on 31 May 2012.
Estimates published by Grayling on 18 June last year said the Universal Credit programme was forecast to spend just £600m in 2013-14. It would spend another £1bn in 2014-15. Hoban said in more recent statements that DWP spent a total of £304m by March 2013.
That would bring total spending on Universal Credit to almost £2bn, with two years of the initial roll-out still to do.