Lies, Damn Lies, and Government Cost Projections

Not unsurprisingly, the news that the NHS’s new electronic patient record system is running more than two years late and looks likely to cost more than three times the £6.2 billion cost that was touted at the time that the project was given the go ahead  – or was that £2.3 billion and ten times the cost as the Register noted here – has drawn a fair bit of comment and criticism.

Tim Worstall, ever with his eye on the economic picture, notes that the now £20 billion cost of the system amounts to 1.5-2% of Britain’s output for a single year, while both he and Longrider draw obvious parallels with the Government’s other massive database project, the National Identity Register, which the state claims will cost £6 billion, a figure disputed by the London School of Economics, who put its estimate of the cost of the system at around £18 billion – three times higher, yet again.

What neither have spotted, buried as it is in the FT’s report on this issue, is the real parallel between the two projects, one which doesn’t just suggest that the real costs of introducing ID cards and the NIR will be much higher than the government’s quoted figure, but also the extent to which citizens will bear the brunt of these costs.

The key statement in the FT’s article is this one:

He [Lord Warner] also admitted that the full cost of the programme was likely to be nearer £20bn than the widely quoted figure of £6.2bn. The latter figure covered only the national contracts for the systems’ basic infrastructure and software applications, he said.

Hospitals and other parts of the NHS would, however, spend billions more on training staff, buying PCs and upgrading and assimilating existing systems over the decade-long programme, Lord Warner said in an interview with the Financial Times.

The extra money did not mean the programme would cost more than expected, he said, but instead reflected the full expense of switching existing IT spending from outdated systems to the new ones.

Notice two things here; first the £6.2 billion figure quoted for the cost of the system covered only the national contracts for the systems’ basic infrastructure and software applications and not the localised costs of staff-training, purchasing and upgrading local computer systems and, seemingly, transferring existing systems and data, if it is only infrastructure and software applications included in the £6.2 billion. This last point , that of the costs of transferring and validating existing data is a rather curious one as this is by far one of the most expensive line items in the total bill for setting up such a system, particularly where records are still held primarily on paper and in handwritten form, making the transfer process a very labour intensive task and, as such, one would have expected these costs to be reflected in the figures quoted for the system.

Second, Warner goes on to say that…

the extra money did not mean the programme would cost more than expected, he said, but instead reflected the full expense of switching existing IT spending from outdated systems to the new ones

If that is the the case then not only is he admitting that the government and/or NHS have knowingly given the public a false estimate of the costs of the system, but one also has to ask the question as to whether this figure has ever been quoted in Parliament and in what context, as if it has and the Minister in question did not make it explicit that the figure given related only to part of the full cost of the system then it may well be that an apology for misleading the House will need to be made.

Regardless of whether this is the case or not, what is clear is that a false picture of the real cost of this system has been given to the public – and it appears knowingly if Warner’s remark that the extra money did not mean that the programme would cost more than expected is taken at face value.

Now, lets apply this to ID cards and the National Identity Register, which means referring to this article from The Register

The £6 billion cost of the ID cards system, like that of the £2.3 billion or £6.2 billion cost of the NHS system is based on the costs of the core ID cards system, i.e, what the government is getting for its money appears to be the NIR itself, plus all the infrastructure, kit and equipment necessary to load the NIR with data, including the controversial biometric data and issue the ID cards themselves, alongside passports.

What doesn’t appear to be included are the costs of linking and integrating other system, which will use the NIR to verify identity, into this new infrastructure – or if these costs are included then, at best, they relate to the costs of linking only a limited number of systems (CRB, Driving Licences and Immigration) to the NIR – nowhere in the government’s costings do they appear to have accounted for the costs of integrating other systems, such as Revenues and Customs, Benefits, Contributions (i.e. NI), Police National Computer, into the NIR, systems where it should be obvious to all but the most slavering of idiots such links and connection will be made. In fact, one obvious question to ask about the NHS system is whether not it has been designed, or redesigned at any stage, to enable it to link into NIR in order the verify identity – remember ID cards were touted as eventually becoming an ‘entitlement card’ for access to public services – and if so when was this done and what costs were associated with it.

It’s also worth noting that the Register article quoted Charles Clarke, then the Home Secretary, talking in terms of offsetting some of the costs of NIR by generating income from departments such as the CRB and DVLA, to offset the cost of ID cards to the public, in addition to generating further income from private sector users – at the very least this will mean banks, building societies, finance/mortgage companies, insurers, etc. but will likely go far beyond that in practice.

And let’s not forget that Local Government systems will also link in to NIR in order facilitate identity checks in their electronic systems; at the very least that’s Council Tax, Housing Benefit, etc without going into employment checks, social services, and so and and so forth.

It seems that few if any of the costs of linking and integrating these systems to NIR are included in the government’s quote figures – which goes a long way toward explaining why the LSE came up with a figure three time higher than the government for the cost of the system.

Who’s going to cover these costs? One way or another, we are…

Over time some the implementation costs may be offset by efficiency savings, which may mean that some of the costs of implementation are recouped, but that’s still a pretty big ‘if’ to be dealing with and the reality is that any such saving will take a considerable amount of time to work through the system and the full extent to which efficiency savings will cover these costs is highly uncertain – what typically happens with any technology based ‘product’ is that development costs are lumped into the price that users pay up-front, in order to recoup those costs as quickly as possible and only when those costs have been covered does the price then fall. Tthis is why a few years ago, for example, the cost of a desktop colour laser printer dropped from around £4,000 to less than £1,000 in the space of a year, what happened was simply that the companies making these printers reached the point where they had recouped enough of their R&D costs in sales revenue to make it worth their while dropping the price in order to stimulate market growth.

In short, if NIR is to be self-financing then one way or another we’ll be paying through the nose in the early years to cover development and implemetation costs and only when these have been covered, with the price fall, if at all.

Quite how we’ll be paying and in what for has yet to become clear. The government expects to obtain some revenue from its own departments, but that inevitably means either increased charges for NIR-linked services, like CRB checks, Driving Licences, etc, or that costs to these departments will have to be absorbed into existing budgets – meaning potential cuts in services/jobs – or covered by increase budgets, meaning increased taxation or government borrowing to offset the costs. The same basic principle applies in terms of linking local government systems to NIR, in fact more so as Council have much less scope that central government when it comes to borrowing, so unless they’re given extra money by central government to implement new systems then there’s only one place these costs are coming from and that’s Council Tax.

One should also beware of government projections on revenue from its own departments and services. The perfect example of this is the Criminal Records Bureau, which set its inital costs for Criminal Record Certificates on the assumption that part of the cost of the system would be offset by providing basic certificates which would be available to all employers, covering unspent convictions in addition to the standard and enhanced certificates required from people working in positions of trust or with children and/or vulnerable adults. The basic certificate was to be the cash cow that kept down the costs of the other two, but when it didn’t materialise – and it still hasn’t – the cost of the standard and enhanced certificates suddenly doubled, with little or no advance warning.

Then there’s the private sector who, more than anyone else, are likely to pass on any costs incurred in linking to NIR, including charges for identity verification, on to their customers and will do so more quickly as well – its a simple equation, increased costs equals reduced profits, etc…

Will an ID card actually cost £300 as the LSE suggested? No, not up front – having pinned there arguments on a fixed cost in pushing ID cards through Parliament any substantial increase in the up front cost of an ID card
would be political suicide, especially if the first cards are issued on time, which would mean their appearance within, at most, 18 months of the next general election. Could they end up costing taxpayers/citizens £300 or more once all the hidden costs are factored into the equation – very probably, which is the point the LSE were making all along.

The real lesson to be learned from this week’s revelations about the costs of the NHS system, lessons that need to applied to our thinking on ID cards, are not simply that government IT projects go overtime and overbudget, but how the government actually conceals the real cost of such systems.

I’m no economist, but like everyone else who followed the passage of the ID cards bill (as it was then) and campaigned against it throughout, I noticed how sensitive and issue price was, even amongst the many who didn’t – and probably still don’t – understand the full rage of issues that ID cards and the NIR raise for every citizen/taxpayer – and one thing I think we do need is for someone who is an economist and who understands how government finance works, to go back over the LSE’s figures, bring them up to date and then extrapolate the full costs of the system not in terms of an ID card will cost x amount but in terms of if ID cards are actually issued at the govenrment’s set price then the hidden costs in tax, council tax, cuts in services, bank charges, etc, etc, will be… giving a breakdown of approximately how these hidden costs will apply.

2 thoughts on “Lies, Damn Lies, and Government Cost Projections

  1. Concerning costs of the National Identity Scheme (NIdS), you might like to look here: Technical Aspects of the National identity Card, and particularly at slides 34 and 35. [Somewhat technically minded people might also find useful, the rest of the presentation.]

    There is the issue of setting up the whole scheme, including enroling the whole adult population. This should be separated from the costs of using the scheme for any particular purpose beyond those arising from registration (ie checking identity for any particular purpose). This is because there is no compelling need to use the NIdS for any particular purpose. It should, surely, only be used for each particular purpose if the use offers benefits to that particular community (or provider and users), and hence offer reduced cost, improved benefit or both (a point the original posting seems to miss).

    It is thus unreasonable to lump in all costs of possible particular uses with the initial cost of setting up the scheme and registering the adult population (though both of those should be considered together, at least initially).

    This is somewhat different from the NHS computer system, where it certainly is the case that the initial costs should include the cost of transferring all existing records (paper and computer) to the new system. On the NHS system, the

  2. Pingback: Ministry of Truth

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