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Tom Mullen: Welfare in Scotland

The future of the welfare state and, in particular, social security benefits could be a key issue in the independence referendum. Spending on state pensions and benefits is the largest item in the UK budget and would be the largest item in the budget of an independent Scotland. Taking over responsibility for pensions and benefits would also be the most complex administrative task facing a new Scottish Government. This would be equally true if the entire responsibility for pensions and benefits were to be devolved whilst Scotland remained within the UK. No major party or group is currently advocating that, but further devolution of specific aspects of the benefit system might come onto the agenda if following a ‘no’ vote in the referendum there remained momentum for further devolution. 

The Scottish Government has been preparing for the possibility of taking over responsibility for social security following a ‘yes’ vote. As part of that preparation, it set up an Expert Working Group on Welfare to “review and provide assurance on work undertaken by the Scottish Government” on: 

  • the cost of benefit payments in an independent Scotland upon independence;
  • the delivery of those payments in an independent Scotland; and
  • offer views on immediate priorities for change.

The Expert Group published its first report, on 11th June 2013. This post considers that report in the context of the current constitutional debate. 

Current Constitutional Framework

Before discussing the report, I will first summarise briefly the current constitutional framework for social security benefits. Several major welfare state functions are devolved, notably education, the national health service, social work and personal social services. The most substantial function which is not devolved is the administration and payment of social security benefits (29% of UK public spending in 2011-12).

The Scottish Parliament has complete freedom to change the law in these devolved areas, policy development is led by the Scottish Government and administration of these functions is carried out by local authorities areas and other Scottish public bodies. Up till now, provision of devolved public services has been financed by a block grant from the UK Government, the amount of the grant being determined in accordance with the Barnett formula, supplemented by local taxation (the Council Tax and business rates). The power to vary the income tax rate has not been used. 

In future this will change as a result of the Scotland Act 2012. The 2012 Act is to give the Scottish Government and Parliament give more autonomy in and responsibility over taxing and spending. The changes which are planned to come into effect in 2016/17 substantially extend the powers of the Scottish Parliament to vary the rate of income tax in Scotland. The tax changes will be accompanied by a substantial reduction in the amount of the block grant. The net effect will be to force the Scottish Government and Parliament to make a positive decision on the level of taxation, something it has not required to do up till now as the level of the block grant will not be sufficient to support all current levels of devolved public spending. 

However, the referendum takes place in 2014, well before these arrangements will be in place. If Scotland does become independent following a ‘yes’ vote, the Scottish Government and Parliament will face the far greater task of taking over complete responsibility for public services in Scotland, including financing them and this will be happening at the same time as the existing UK benefit system is being radically restructured. 

The UK Government’s Programme of Welfare Reform 

The Coalition Government elected in 2010 announced major spending cuts including cuts to benefits shortly in an 'emergency Budget' in June 2010 and in the Comprehensive Spending Review in October 2010. This was followed by a major policy review which resulted in plans for a major restructuring of the benefit system. The key changes whether already in place or planned for the near future are: 

  • Rates of benefits are in future to be uprated in line with inflation as measured by the consumer price index (CPI) rather than the retail price index (RPI);
  • A number of benefits will be uprated by only one per cent for three years beginning in 2013/14 rather than by CPI.
  • Six means-tested/income-related benefits and tax credits are to be replaced by Universal credit which will be a single payment to cover all the income needs of adults of working age who are looking for work, or in work but in low incomes, and the needs of their dependants;
  • Disability Living Allowance will be replaced by the Personal Independence Payment;
  • The discretionary social fund which provided community grants and crisis loans for living expenses has been abolished and the function transferred to the Scottish Government which has created the Scottish Welfare Fund to finance payments by local authorities;
  • Housing benefit changes which include:
    • an absolute cap on the amount that can be paid to cover rent etc.
    • automatic reductions in the rent allowed to be counted for working age tenants in the social rented sector who are deemed to be under-occupying their houses (the so-called ‘bedroom tax’).
  • Abolition of council tax benefit which is to absorbed by universal credit; and
  • A cap on the total amount of benefit a household can receive (currently around £26,000).

The scale and ambition of these changes, the fact that the transition to the new UK benefit system will not be complete till 2017, and the scale of the planned spending cuts will tend to complicate the transition to an independently run Scottish benefit system, making the need for careful planning even more pressing. 

The Report of the Expert Working Group 

Cost of benefits 

The first part of the Expert Group’s remit was to review the cost of benefit payments in an independent Scotland. The Group’s report provides a preliminary forecast of benefit spending in Scotland up to 2017-18. It estimates that total spending in Scotland in 2011-12 was £17.8 billion (including administration costs). That figure is forecast to increase in cash terms to £20.3 billion in 2017-18, but in real terms (based on 2011-12 prices) to only £18.3 billion. These figures take into account the effect of the planned changes summarised above.  

Delivery of benefit payments 

The second part of the Expert Group’s remit was to consider the delivery of benefit payments in an independent Scotland. The group pointed out that the Department of Work and Pensions (DWP) maintains a large infrastructure of benefits administration in Scotland including many offices and staff. These staff and offices process most benefit claims arising in Scotland, but also process a significant number of claims arising in the rest of the UK. Similarly, a significant number of claims arising in Scotland are processed elsewhere in the UK. The Group appraised a number of options for maintaining delivery of benefits in the period immediately following the referendum. These are: 

  • immediate transfer of benefit administration to the Scottish Government (SG);
  • sharing services between the two governments;
  • transferring DWP and HMRC functions to existing Scottish public bodies e.g. local authorities and Skills Development Scotland;
  • establishing a private sector delivery infrastructure. 

The group recommended the third option – sharing services – on the basis that the risk of breakdown in service provision would be low and it offered the best value for money in the short term. This would essentially involve the Scottish Government taking over the benefit infrastructure in Scotland but with the current arrangements for cross-border processing remaining in place for a transitional period. This assumes, therefore, that there will be a transitional period after independence before complete separation of the benefit systems of Scotland and the rest of the UK is effective.

The group concluded that, in the event of a ‘Yes’ vote, the SG and the UK Government would have a strong interest in working together to secure the delivery of benefits during an agreed period of transition, and suggested an intergovernmental agreement for a fixed term, specifying the services which each Government will provide to citizens North and South of the border (e.g. how benefits will be paid, when they will be paid etc.), the financial arrangements for providing those services and dealing with IT contracts, intellectual property, third party arrangements and other matters. 

Priorities for change 

The third part of the Expert Group’s remit was to offer views on immediate priorities for change in welfare benefit policy. In the event the Group did not make any specific recommendations for policy change in an independent Scotland, suggesting instead that there should be a wider conversation about ‘the principles that would underpin a welfare system in the event of Scottish independence.’ 

However, the report does summarise the main themes that emerged in response to their calls for evidence. Many responses related to the likely effects of recent and planned changes to UK benefit policy. One issue raised by consultees was that claimants in receipt of a number of benefits could suffer a substantial cumulative loss as a result of the combined effects of the changes. There were also concerns about the way in which Universal Credit would be implemented, notably the switch to monthly payment of benefit and the ‘digital default’ approach which assumes that claimants have access to a computer and the skills to use one effectively. A third issue on which concern was expressed was a perceived increase in the automatic use of sanctions for failing to meet employment-related requirements which was thought to be excessively harsh. In relation to housing benefit, there was concern about removal of the option of direct payment of rent to landlords and the new stricter under-occupation rules and associated benefit reductions. There was also concern that third sector organisations providing advice and support were under increasing pressure from rising caseloads. The majority of responses were focused on tackling inequality and there were specific concerns about possible negative impacts of the changes on certain claimant groups including women, those receiving disability benefits and their carers. Many respondents also advocated a preventative and holistic approach to welfare spending focussed on support and early intervention. 

The Group also considered Scottish public attitudes to welfare, noting that a substantial majority of Scots favour the Scottish Parliament being responsible for welfare benefits (See, for example, successive Scottish Social Attitudes Surveys). However, opinion surveys also seem to show that whilst Scots are slightly more likely to be concerned about income inequality and more likely to support redistribution of wealth than people in England, concern about inequality and support for income redistribution have both fallen throughout the UK over the past decade. 

Comment and Analysis 

Welfare policy raises important questions of social justice, economic efficiency and sustainability. Whatever their views on questions of social justice, voters ought to be informed about the possible consequences of independence in general, and of taking over responsibility for welfare benefits, in particular. This report has little to tell us about the long-term consequences of independence, and for good reason. We do not know what policies will be pursued in the long-term on welfare benefits and the task of the review was essentially to consider transition planning. 

Effective administration of benefits after independence 

Clearly the most immediate and pressing concern about any transition to an independent welfare system would be whether it could continue to pay the benefits to which people are entitled without substantial disruption. The report demonstrates that this ought to be possible. The infrastructure of staff, offices and IT systems is already there and, for those claims processed outside Scotland, it ought to be possible to make arrangements with the government of the rest of the UK for shared services. Where there may be cause for concern about disruption is the demands that are being, and will continue to be, placed on the system by the current programme of welfare reform. If the UK Government sticks to its timetable, this will be very far advanced by independence day which the SNP has proposed would be immediately before the Scottish Parliament elections in 2016. 

So, if a collapse of, or major disruption to the system does not seem a likely prospect, we can shift our attention to the medium and long term issues. What direction might policy take?  

Legal constraints on policy development after independence 

Let us assume that an independent Scotland would be a member of the European Union and would want to be bound by the European Convention on Human Rights (ECHR). The ECHR is mainly concerned with civil and political rights rather than social and economic rights. So, although occasionally issues relating to welfare benefits are raised, the ECHR is not likely to be a major constraint on developing welfare benefit policy. 

EU law will present a more substantial constraint. There is a significant body of EU legislation and case law affecting social security. It is impossible to provide summary of these in a few words. Suffice to say, the main aim of EU law in this area has been to ensure that the existence of separate benefit systems in all the Member States does not present a major obstacle to the mobility of workers in the EU. This is achieved by ensuring that migrant workers can take accrued social security rights with them when the move to another Member State and are treated equally so far as possible with local workers in each Member State’s social security system. Therefore, an independent Scotland would be prevented from restricting benefits to Scottish citizens and any conditions of entitlement to specific benefits would have to apply equally to nationals of all Member States. Similarly, it would have to participate in the arrangements for making benefits portable around the EU. These are significant but they are not major constraints. They have no effect on the current programme of reform of the UK benefit system and they would not the government of an independent Scotland from reversing those changes or heading in a different direction. On the positive side, the EU rules provide some reassurance for Scots working elsewhere and for EU citizens working in Scotland that benefits will not be less portable as a result of independence. 

Political and economic constraints on policy development 

The major constraints on policy development beyond the transitional period will be political and economic rather than legal. There is clearly significant scope in principle for changes to welfare benefits policy. A variety of different models are used around the world and the controversial nature of recent changes such as the ‘bedroom tax’ implies that the current reform programme’s changes to benefit entitlements might not be followed in an independent Scotland. However, the government of an independent Scotland would have to ensure that its policies were politically acceptable and economically sustainable. The principal audiences that would require convincing would be the voters, domestic and international businesses considering investing in Scotland, the financial markets and, assuming that there is a currency union between Scotland and the rest of the UK, the government and central bank of the rest of the UK. The views of each of these groups as to what is the desired shape of social security policy are likely to diverge to a significant extent.  

A status quo option of simply keeping the framework of welfare provision inherited from the UK and the level of public spending consequential on that ought to be economically and politically feasible. The Expert Group accepted that the SG’s spending forecasts were appropriate. They did not comment directly on the affordability of those policies but the available evidence, e.g. spending to GDP ratios, suggests that the current level of expenditure is sustainable at least in the short term. Whether significantly higher expenditure (which might result either from a different set of policies or from changes in economic performance) is sustainable is less clear. The people and government of an independent Scotland would have to consider not only current circumstances, but also long-term challenges such as how we continue to finance public services with an aging population and increasing longevity. 

The future of welfare benefits within the UK 

What if there is a no vote? Would that simply mean a continuation of the status quo or might there be further devolution of functions and/or financial autonomy to Scotland within the UK? As noted above, it appears to be the case that a majority of Scots favours the Scottish Parliament being responsible for welfare benefits. Is that possible? There is certainly no major constitutional obstacle; the UK Parliament could devolve the whole of the social security function to the Scottish Parliament and Government. However, in practice no major changes to devolved powers in this area would be accepted by the UK Government without also reconsidering how Scottish public services are financed. What might at first sight seem to be the simplest option - complete devolution of both the power to legislate on social security and the responsibility to finance it - seems a very unlikely outcome. In many comparable countries, only some aspects of legislative power over welfare are devolved. Even where there is greater local discretion in delivery, as in the United States, autonomy is limited by the fact that central government typically finances much of the expenditure. Even advocates of ‘full fiscal responsibility’ for Scotland tend to advocate keeping responsibility for social security and employment rights at the centre. 

This does not mean that no change to social security is possible without independence, merely that the scope for it will be constrained by funding issues. Nor does it mean that there are no tensions arising from current arrangements. The row over the ‘bedroom tax’ provides an example of the difficulties caused when closely linked aspects of the welfare state are the responsibility of different levels of government.  Housing benefit is reserved but the rest of housing policy is devolved. Most Scottish local authorities and other social landlords oppose the application to their tenants of the new Housing Benefit rules which reduce benefit in cases of ‘under-occupation’. It is they who experience and must respond to the consequences of the policy, e.g. an increase in applications for transfers, increases in poverty amongst tenants and increased homelessness.  However neither they nor the SG have any control over the policy itself, although some landlords are taking steps to minimise the effects such as refusing to evict for rent arrears when they arise from the imposition of the bedroom tax.

This row also suggests a broader political question. Could it be argued that the social policies of an avowedly unionist UK government might be a threat to the preservation of the Union? The Calman Commission, in arguing the case for the continuation of the Union, said that the UK was a social union in which important elements of the welfare were reserved and citizens across the UK had common rights. The major benefit of keeping social security reserved in addition to its role in preserving a common UK identity was said to be the pooling of risks and resources across the UK that it enabled (see the report of the Commission on Scottish Devolution). 

If Calman was right in supposing that common citizenship rights including welfare rights are a major part of the glue holding the Union together, should unionists be worried about the radical reshaping of the welfare state that is underway in England? It is of course true that the welfare state has from the beginning been a mix of centralised UK provision and territorial autonomy. Both state provision of education and the National Health Service (NHS) have been separately governed in Scotland, and in Northern Ireland even social security is devolved. However, it is important to note that there was significant convergence in policy and the approach to service provision in the NHS (somewhat less so in education), and despite benefits being devolved to Northern Ireland, benefit entitlements there have mirrored those in the rest of the UK because of the ‘parity principle’, so there is no experience there of divergent citizenship rights. Comparing Scotland and England, we can see that, particularly in the NHS, the differences in approach have grown significantly in the last 25 years. Whilst the principle of a service free at the point of delivery has been maintained throughout, since the early 1990s there has been a succession of attempts to marketise the NHS and to change its administrative structures in England, and the most recent reforms occurring under the Health and Social Care Act 2012 continue this process including by facilitating the increased use of private sector providers in the NHS in a variety of ways. There is not space to explain these changes, but it is fair to say that although the principle of a free public service is maintained the experience of patients and NHS staff in England may within a few years become very different both from what it has been in the past and from what it will be in Scotland. 

Education has also become an area of increasing difference, for example, the introduction of substantial fees for University students, the attenuation of local authority control over schools and the increasing retreat from the principle of comprehensive education in favour of overt and covert selection. 

So there is increasing divergence in the devolved areas of the welfare state. What we have also been seeing under the government is major change in reserved areas of social policy, of which the most important is social security benefits. The radical reform programme of the current government has been described above. What is happening here is by definition not territorial divergence, but it is certainly a major change of approach for the UK; a change which involves less generous entitlements, and more conditionality (i.e. enhance availability for work requirements) based on increasingly strident and moralistic rhetoric.  

The argument would be that the welfare state may be unable to perform the supposed function of creating a social union if there is both (a) greater divergence of approach to citizenship rights in devolved areas and (b) the existing welfare ‘settlement’ is under attack in reserved areas. The political tensions created by the interaction between reserved and devolved areas of the welfare state – as in the case of the ‘bedroom tax’ - might make this worse. Against this, it might be said that the hardening of public attitudes to welfare spending evident in opinion surveys – which is evident on both sides of the border – lessen the likelihood that voters will see radical changes to welfare benefits as undermining the benefits of remaining in the union. 

There is, therefore, ample room for disagreement as to what the future of social security should be and will be, and this will remain true whether Scotland’s future us inside or outside the Union.

Tom Mullen is Professor of Law at the University of Glasgow.


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