You could assume that the time allocations could be broken down as follows (billable by the hour), which makes it more believable that the total cost could be approx £585.
* 1 hour - Account handler discusses with request with client, adds to studio traffic scheduler
* 2 hours - Icon development by designer
* 3 hours - Developer wrestles with old website platform to try and add relevant to every template
* 1 hour - Project Manager reviews and discusses with client
* 1 hour - Developer deploys to production environment
Making 8 hours at approx £75/h (£600) which all sounds perfectly believable for a London digital studio.
One of the issues with the low barrier to entry to web development is that a class of people exist who believe that the job is entirely a process of making a website (or a favicon) and uploading it via FTP, maybe even installing Wordpress. Complex client relationships, business/deployment processes and old web systems do not factor into their equation for cost. It is important that these people exist, otherwise the cost of being involved with the web would be astronomical for businesses at the lower end, but there _are_ good industry practices for quality work and jobs required at the higher end which they are putting in jeopardy with sensationalist headlines such as this one. Some clients have more available money, but require much more effort than throwing up a few plugins and shooting them an email once it is done. Nor is favicon design a case of taking one of my Silk icons are throwing it through a dynamicdrive favicon maker.
That said, there are still a few examples of UK website procurement which goes beyond what you might call value for money, such as Birmingham Council's website which cost £3m (http://www.birminghampost.net/news/politics-news/2009/08/04/...), although my concern with that website was not so much the cost but the quality of the work (from a quick scan I don't have the same concerns about the ICO website).