Our Future of Britain initiative sets out a policy agenda for governing in the age of AI. This series focuses on how to deliver radical-yet-practical solutions for this new era of invention and innovation – concrete plans to reimagine the state for the 21st century, with technology as the driving force.
Contributors: Hilda Barasa, Yiannis Theodorou, Michel Viano
Chapter 1
A digital ID could significantly improve the way that citizens interact with government – saving them time, easing access and creating a more personalised service. For these reasons alone, a digital ID is worth the investment.
A digital ID also has the potential to directly improve the government’s fiscal position by reducing benefit fraud, improving the efficiency of tax-revenue collection and helping to better target financial-support payments during crises. In this companion to The Economic Case for Reimagining the State, we set out the economic case for a digital ID in the United Kingdom, weighing the implementation costs with the expected benefits that would come from modernising the way citizens, the government and the private sector exchange information. We compile enough evidence, where it exists, to make the case that investing in a national digital-ID system is economically worthwhile.
To provide estimates of costs, we leverage knowledge from other countries’ experience of setting up digital-ID systems and publicly available information regarding the UK’s readiness for one. While the main rationale for investing in a digital-ID system is to improve services for citizens, these benefits are dependent on the specific public- and private-sector applications. This analysis specifically focuses on the additional macroeconomic benefits arising from tackling fraud and improving the tax take as well as ways of targeting economic support that can further justify the investment costs.
Quantifying the scale of these effects, the costs of rolling out a digital-ID ecosystem and the overall net impact on the public finances is a challenging task given the paucity of data, so the figures below are necessarily constructed on a best-endeavour basis.
Overall, our analysis shows the following:
Benefits: A digital ID could help improve the government’s fiscal position by around £2 billion per year through three channels:
Cutting benefit fraud by £1.25 billion a year. Benefit fraud costs the Exchequer more than £7 billion a year. A digital ID could reduce this significantly by enabling additional identification and eligibility-verification checks on claimants. A digital ID could also generate some indirect benefits to the wider economy by reducing ID-related fraud in the financial sector, which we estimate could save a further £350 million a year.
Collecting £0.6 billion in extra tax revenue each year. By better linking taxpayer data, a digital-ID ecosystem could help close the UK’s tax gap by pre-populating tax returns. This would save citizens time while also helping to avoid tax-filing errors that cost the Exchequer several billion each year. In addition, by making it easier to link together complex data sets, a digital ID could enable HMRC to better target tax-compliance activity – helping to crack down on under-taxed offshore income, for example.
Saving £0.2 billion a year through better targeting of support during crises. By their nature, crises do not occur at regular intervals or at the same scale. So the potential for a digital ID to reduce crisis-related costs will vary substantially from year to year. However, the 2022 energy-price shock does provide an instructive example of the potential gains from having a digital ID in a crisis. In 2022, the government’s energy-bills support scheme and energy-price guarantee were made available to all households and cost £33 billion. We estimate the government could have saved at least £10 billion if it had used a digital ID to better target support to the most at-risk households.
Costs: We estimate the enabling infrastructure for a digital ID would cost around £1 billion to set up and £100 million to run each year. This is a slightly lower figure than in other countries that have recently created similar schemes (for example, Australia and Italy) because the UK has already put some of the necessary infrastructure in place via its One Login programme.
The £1 billion in setup costs would cover the costs of enrolment and implementing the core digital infrastructure needed to link data across various government departments.
Net impact: Based on international experience, we think it is achievable for the government to fully roll out a digital ID within one parliamentary term. A rapid rollout would see the scheme cover its initial setup costs within three years of operation, and from that point on, it could raise around £2 billion per year for the Exchequer.
In the following chapters, we look at what a digital-ID system is and explore the reasons why the UK needs one before delving into the additional macroeconomic benefits arising from tackling fraud, improving the tax take and targeting economic support. We estimate the costs and how quickly the system could be rolled out, plus highlight the net benefits.
Read the full paper here. This is one of four companion papers to The Economic Case for Reimagining the State.