Universal Credit costs leap by more than 20% to £15.8bn

The total lifetime cost of the Universal Credit welfare reform programme has increased by nearly £3bn in the past three years to £15.8bn, according to figures from the government’s Major Projects Authority (MPA).

The last time the Department for Work and Pensions (DWP) calculated an official cost estimate for the whole project, in 2012, it was £12.85bn. But the latest annual report from the MPA shows that, as of September 2014 when the report was compiled, the cost is now expected to be more than 20% higher.

Since the 2012 estimate, DWP has been forced to tear up its original plans for the troubled programme, writing off millions of pounds in scrapped IT development and revising the timetable for roll-out. That process, labelled as a “reset” in 2014’s MPA report, allowed the revised lifetime costs to remain under wraps until now.

The MPA gave Universal Credit a “red-amber” rating for its confidence in the delivery of the project, a status that is defined as: “Successful delivery of the project is in doubt, with major risks or issues apparent in a number of key areas. Urgent action is needed to ensure these are addressed, and whether resolution is feasible.”

However, the Department for Work and Pensions (DWP) insisted that the change in the lifetime cost is simply due to a change in the way the figures are accounted for, by assessing the running costs of Universal Credit (UC) over more years, up to 2023/24 instead of 2021/22.

“There is no increase to the budget for Universal Credit, this is just an accounting measure which includes the cost of running Universal Credit over more years. In fact we’ve reduced the investment costs for Universal Credit by 25%. When fully rolled out UC will bring economic benefit of £7bn a year," said a DWP spokesman. 

The MPA review said that delivery of Universal Credit remains on track against plans announced in September 2014, when Her Majesty's Treasury (HM Treasury) agreed the business case for the programme.

The DWP comment on the costs included in the MPA report said: “The budgeted whole life costs reflect the Strategic Outline Business Case approved by HM Treasury. This figure excludes the impact of further savings expected.”

Work and pensions secretary Iain Duncan Smith has previously insisted that the financial benefits of Universal Credit far outweigh its costs. The National Audit Office said in November 2014 that the "net present value" of Universal Credit in the DWP business case was £20.7bn.

However, a report by the Public Accounts Committee (PAC) in February 2015 said that DWP had failed to convince MPs that it had delivered value for money on Universal Credit, despite having spent £700m so far.

The controversial welfare scheme aims to replace six existing benefits. A limited version of the programme is being rolled out across the country, but only targeting the simplest of claims, and using an IT system that will mostly be thrown away once a new digital service currently under development has been completed.

The digital service, which will eventually support the full roll-out of the new benefit nationwide, started a trial in one postcode area of Sutton in south London at the end of 2015, and has recently been extended to another postcode in Sutton, as well as one in neighbouring Croydon.

Early IT development for Universal Credit was beset by problems. By the time the welfare programme is fully implemented, it will have scrapped more than £300m of IT development work. Under the original plans, all benefit claimants were expected to be on Universal Credit by 2017/2018. The DWP has since revised the target so only new claims will be on the system by 2017.