Basic Income Admin Costs

Until recently we had an unconditional benefit. The child benefit was paid out to everyone with children regardless of their earnings. It was a very cheap benefit to administer costing 0.58 pence for every pound of benefit paid out. Of course now that we have a tax on children for people earning in excess of £50,000 collected through the tax return, the administration cost is liable to go up and it also opens up the possibility of fraud.

Unconditional Basic Income would be at least as cheap to administer as child benefit. If we replaced our other means tested benefits with Basic Income, how much would we save?

I'm finding it difficult to get a figure out of the DWP accounts but it could be as much as 3.4% which is how much the HMRC spend on admin for administration of tax credits and child benefit combined.

What I have found is that 2.1% of the total budget is wasted on errors and fraud. The fraud rate for a basic income would probably run at around 0.1% which is around the same as the fraud rate for pensions.

So if we are generous and say that the admin costs for the DWP are 3% and add in fraud at 2% then we can say that the running costs of the current system is around 5%

Compare that to an estimated 0.58% admin and 0.1% fraud rate for basic income and you can see that potentially there could be some pretty good savings to be made.

If we were to go for a revenue neutral scheme like that proposed by the citizen's income trust, then we could be saving around 7 billion that could go to providing welfare instead of bureaucracy

Don't just take my word for it that means testing is inefficient. The DWP's own annual report is critical of means testing.

Source: DWP Annual Report and Accounts

The report also explains the significant challenge the Department faces in administering a complex benefits system to a high degree of accuracy in a cost effective way. Some benefits, mainly those with means-tested entitlements, are more inherently susceptible to fraud and error due to their complexity, the difficulties in obtaining reliable information to support the claim and the challenges of capturing changes in a claimant’s circumstances. These more difficult to administer benefits, such as Pension Credit, tend to be the ones exhibiting the highest estimated fraud and error rates. The Department is limited in the total resources it can devote to the administration of the complex benefits system, and has to make trade-offs between accuracy checking, customer service and maintaining productivity. We recognise that the Department needs to strike a balance between the need to provide sufficient scrutiny over claims and doing so in a way that is not overly burdensome, otherwise administration of the benefits system would become impractical

Not only is Basic Income cheap to run, but because it is so simple, the effects of raising or lowering it are cheap too. For instance implementing universal credits has costs many millions with no returns.

See what the DWP report has to say on implementation of Universal credits

Source: DWP Annual Report and Accounts

On-going implications for value for money

As noted above, in my report “Universal Credit: early progress” (HC 621) published in September 2013, I concluded that at this early stage of the Universal Credit programme the Department had not achieved value for money. I consider this judgement is reinforced by the Department for Work and Pensions Annual Report and Accounts 2012-13 Information in the Department’s 2012-13 Annual Report and Accounts. Up to 31 March 2013, the Department had developed assets with an initial value of £196.1 million for the delivery of Universal Credit. In these accounts it has written off £40.1 million of those assets as it will never use them. It also now expects to write down £91.0 million of the remaining assets to nil value by March 2018, due to the considerable reduction in their expected useful life. While this is the appropriate accounting treatment, it should not detract from the underlying issue that the Department has spent £91.0 million on assets that will only support a limited service for 5 years, with clear consequences for public value.

Basic income can be administered in much the same way as child benefit and possibly could use the same computer systems with a few modifications. It would be great value for money.


Not only that, but the impact of basic income on people's net income is so much easier to calculate because it is simple. The DWP have made such a hash of Universal Credits that some families will actually have less money in their pockets from working extra hours and will in many cases be worse off than under tax credits. This means that they will have less incentive to work.

The Joseph Rowntree Foundation have looked at this in detail.

Source: Joseph Rowntree Foundation

A couple with two young children, where one person works full time on the minimum wage, after receiving universal credit, would have disposable income of £346 a week. This falls £103 a week short of what the family needs for an acceptable standard of living according to the public.

• If the second earner works 1.5 days a week on the minimum wage they would have disposable income of £369, £80 short of an acceptable standard of living.
• If the second earner works 3 days a week (twice the hours) it would make little difference, with the family only £8 a week better off. Their disposable income would be £377, £72 short of an acceptable standard of living.
• If the second earner works 5 days a week they would actually be worse off. Their disposable income would be £375, £74 short of an acceptable standard of living.

Basic income is much easier to work the impact of changes because its extremely simple. Basic income guarantees that anyone who works even part time will be better off working than if they stayed at home unlike other costly schemes I could mention.


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