Universal credit: £120m could be written off to rescue welfare reform

Labour says ministers in disarray as leaked documents reveal two options for saving project to merge benefits and tax credits

Work and pensions secretary Iain Duncan Smith is understood to prefer the plan to improve the existing universal credit system. Photograph: Ian Nicholson/PA

Ministers attempting to put the troubled universal credit welfare reform programme back on track have been presented with a radical plan to restart the scheme and write off £119m of work over the past three years.

The proposals would create a much more web-based system, reducing the need for jobcentre staff, but putting the whole scheme back to "phase one".

The plan is detailed in more than 150 pages of leaked documents that present two options for rescuing the huge project to merge six major benefits and tax credits into one payment. The other plan would attempt to improve the existing system and build on the investment already made. Both plans were drawn up by civil servants at the direction of Department for Work and Pensions ministers.

The documents include a risk assessment of each option, which criticises both plans and warns that a maximum of 25,000 people – just 0.2% of all benefit recipients – will be transferred on to the programme by the next general election, whichever route is taken.

The risk assessment warns that the plan to start again, the "design and build" web-based scheme, is "unproven ... at this scale". It says the plan to fix three years of work on universal credit is still "not achievable within the preferred timescales", describing it as unrealistic.

The scheme has suffered management and computer problems since work began in 2010, causing Iain Duncan Smith, the work and pensions secretary, at the start of the year to push back the timetable for rollout. Labour says the scheme is in "total chaos".

Sources working on the programme say Cabinet Office minister Francis Maude, who is responsible for the government's digital team, is in favour of the fresh web plan. Duncan Smith and his newly appointed project director, Harold Shiplee, are understood to back fixing what has been created over the past three years.

The risk document says that the option to fix the current system is "not endorsed" by the Cabinet Office, which could have "an adverse impact on delivery timescales" in getting government approvals. A source close to Maude insisted there was no division with Duncan Smith, saying they were "working closely and strongly together". A decision is expected by the middle of next month.

Duncan Smith has repeatedly maintained that universal credit will be delivered on time and on budget but, according to sources close to the project, senior civil servants have raised concerns in the past few weeks that the 2017 deadline for getting millions of people on to the programme is now unrealistic because IT systems are not working as expected and design flaws are too numerous.

Last month a damning National Audit Office (NAO) report catalogued failures of leadership and project management and identified £34m in wasted expenditure. The NAO said the project had been beset by poor governance, but ministers said they had already initiated a "reset" and had called in Shiplee, the Olympic project manager, to regain control.

The risk assessment, dated 11 October, says the plan for a faster, more web-based system would involve writing off £119m of previous work, and cost the DWP £96m to develop. However, it warns ministers that they will have no idea if the web-based system will work until the summer of 2014 "when it is live for 100 claimants".

Fixing the existing system would cost £226m, the report says, and the completed design would still be vulnerable to security flaws. While this option offers a chance for reputational recovery, a smaller write-off cost of £21m and less disruption, the report warns it may ultimately not prove value for money. Asked about the findings of the risk report, the DWP said its plans remained on track and would ultimately save the country £38bn.

The shadow work and pensions secretary, Rachel Reeves, said the leaks showed that the "only options on the table involve millions more being committed with no certainty of when or whether this project will ever be properly rolled out".

She added: "At a time when budgets are being cut across government, this is scandalous mismanagement of taxpayers' money. And instead of getting a grip, the government are in complete disarray over what to do about it."

Ministers may order both plans to be pursued at the same time and wait to see what happens after six months.

On Monday universal credit trials were extended to London, with new claimants in Hammersmith shifted on to the programme. Hammersmith is the fifth area to pilot the benefit, which was initially intended to cover the UK by this month.

Though no official figures have been released, there are understood to be several thousand claimants involved in the trials. The department said it was will expand them to Rugby, Inverness, Harrogate, Bath and Shotton by spring 2014.

A DWP spokesman said: "Our work on the development of universal credit is ongoing and, as we said back in July, we will be announcing the next stage of rollout later this year. Our plans for delivery, which will ultimately bring a £38bn benefit to society, remain on track."

Guardian