In Chapter 4 of our March 2013 EFO, we discussed the fiscal outlook for 2013-14 to 2017-18. In this box, we introduced a new marginal cost presentation of the universal credit forecast and also outlined contributing factors to changes in the forecast. These factors included policies announced at the 2012 Autumn Statement and changes to a number of the universal credit policy parameters as well as refinements to the methodology and assumptions used to forecast universal credit. The analysis in this box has since been superseded by developments in the universal credit forecast.

This box is based on DWP universal credit forecast data from March 2013 .

Universal credit has to date been included within our forecast for social security in AME only as an additional cost on top of what would be spent on the existing social security benefits and tax credits system if that system was left in place.

Over time people will migrate from the old system to the new and we have been working with DWP and HMRC to show this shift in expenditure in our forecasts (leaving the total cost unaffected).

Table A, shown below, compares the current presentation, which reflects how the forecasts are currently produced, with the new presentation, which shows the build up of universal credit. This new presentation is still work in progress, and it is only another way of viewing our existing forecast for total tax credits and DWP benefits in AME, which is still forecast using previous systems, plus the forecast for the marginal, additional costs of universal credit. There are still a number of uncertainties around the new methodology. The figures shown in Table A for the new presentation are therefore not yet robust enough to be used for monitoring, and we will work with DWP and HMRC to improve the new methodology further, for our Autumn 2013 forecast.

Table A: Social security, tax credits and UC: current presentation and new presentation including the build-up of UC

The additional cost of universal credit is expected to be lower than we forecast in December. Table B shows the total movement in the estimate of the additional costs of universal credit. A number of factors have contributed to this change, including:

  • changes in the economic assumptions;
  • policies announced in the 2012 Autumn Statement, including finalising the universal credit disregards and changes to the uprating of working age discretionary benefits, tax credits and housing benefit, which significantly reduced the costs of universal credit. The total impact of these measures were included in our social security and tax credit forecasts in December, but we do not disaggregate the impact into different components of the social security and tax credit forecasts until after each fiscal event, and therefore the March forecast of the additional costs of universal credit presented in table B also excludes the impact of policy measures announced in the 2013 Budget, which are described in table 4.3;
  • refinements to the methodology and assumptions used for the universal credit forecast, including more detailed modelling using DWP’s INFORM model; and
  • changes to a number of policy parameters for universal credit, including small changes to the transitional profile in 2013-14, and how the disability additions within universal credit will be phased in.

The revised forecast for the additional costs of universal credit is still subject to significant uncertainties, which we described in Box 4.3 of our December EFO.

Table B: Additional costs of universal credit, included within social security in PSCE in AME

This box was originally published in Economic and fiscal outlook – March 2013