Universal Credit: there are reasons to question the supposed net benefit of £38bn

I’m grateful to Andrew Jones for drawing my attention to a table in the NAO report (Figure 2, page 15) which explains how the DWP proposes to find a net benefit of £38bn from the current  annual expenditure of £65bn on the benefits that will become Universal Credit.  The figures look like this:

Net benefits of Universal Credit (£ billion, 2011-12 prices)

The benefits are supposed to be over 12 years, so that the actual benefit is just over £3bn a year, rising to £7bn after the system beds down; more than 60% of the benefits, and nearly three-quarters in the initial period, are to the ‘wider society’.

Quite apart from iffy use of a 12-year period, and the long lead times, there are two other problems with the figures as they stand.  First, the  scheme has already been delayed, and a system that isn’t up and running can’t possibly deliver the benefits claimed.  As the schedule is now at least two years behind, two years of the final benefit disappear.  Second, net present benefit is supposed – as the term implies – to be net.  In the plus column go the benefits to society; in the minus column go the costs, to anyone who experiences them.  That’s how cost-benefit appraisal works.  If claimants are getting less, that is a cost to claimants.  Taking these two points together, the apparent net benefit falls, on the government’s own figures, from the claimed £38bn to £19bn: that is, £27.8 bn minus twice £4.4 billion.

That, of course, is only what’s apparent.  It’s rather difficult to say how good the remaining figures are, because the basis of the DWP’s Dec 2012 ‘economic case’ hasn’t been made public.  What is publicly available is the Dec 2012 Impact Assessment, which includes hardly anything of this, but which states overall (and rather more plausibly) that the measure has a net cost  of zero.  If the impact statement is right, and the government expects to save £0.2bn per annum on fraud and error, there is still another £18bn of supposed benefits to account for.

Giving evidence in September to the Public Accounts Committee, Sharon White of the Major Projects Authority said that the Treasury had not actually seen the business case: “We expect the net benefits to be substantial,  but we shall not sign off a specific number until we see the final business case.”   It seems, then, that no justification has been offered to the Treasury for the claims of social benefit; and that makes it look, bluntly, as if the figures have  been made up.