A Summary of the Report and its Main Recommendations
A. Remit and process
1. The Expert Working Group on Welfare was asked to consider the principles which could underpin the welfare system in an independent Scotland. We also considered, in broad terms, the policy propositions for working-age benefits that could be pursued by Governments in an independent Scotland and, where relevant, the implications such policies might have for cost and delivery. The Report is designed to stimulate debate for everyone in Scotland as they consider their future and the shape their welfare system might take. The work builds on the Group's first report, published in June 2013, which focused on what Scotland would inherit and the transitional priorities for change in the event of independence.
2. In order to support our work, we developed a detailed and targeted process to help us build our knowledge and establish a firm, evidence-based and wide-ranging foundation for our recommendations. We received direct written evidence, convened stakeholder sessions, commissioned research and held meetings with benefit recipients, wider civil society and academics, amongst others. We have drawn extensively on available demographic and statistical information for Scotland and its performance in relation to other parts of the UK and other nations.
3. We make nearly 40 recommendations for change.
B. Context, challenges and opportunities
4. A progressive and modern nation is one that, among other things, recognises the importance of an effective social security system to social cohesion and the health, wellbeing and life chances of its population. It should be a safety net, and importantly, a springboard to a better life wherever that is possible. Supporting individuals as they move from one phase of their lives to another, particularly from unemployment to employment, is key to a modern social security system for Scotland.
5. We firmly believe that paid employment is the best route out of poverty for anyone who can realistically be expected to work. The reality for too many people today, however, is that a job no longer guarantees this. Changes resulting from the 'hollowing out' of the labour market, the prevalence of low-paid jobs and the increasing casualisation of employment mitigate against the availability of secure, sufficiently remunerated work for many people.
6. We set out in some detail what we consider the relevant social and economic factors that underpin our Report. These include population, economic performance, the role of work, the structure of the labour market, families and households, the role of caring, poverty, inequality and social attitudes. A future Scottish system cannot be developed without taking account of these factors. They are all central to any consideration of welfare and have played a significant role in shaping the development of our thinking.
7. We conclude that Scotland is a wealthy country, rich in assets. Performance relative to the UK as a whole, its nations and regions and other OECD countries, is strong. The amount spent in Scotland on 'social protection', which includes pensions and other welfare spending, is lower as a share of GDP than in the UK as a whole. When compared against the other regions and nations of the UK, Scotland's productivity is only bettered by London and the South East. Scotland compares well internationally in terms of educational levels achieved and performs best of all four nations of the UK in terms of the fewest people with low skills and the highest number with high skills.
8. There are matters which Scotland will have to address in the future. Employment rates amongst older workers, particularly women, are significantly below the best in Europe. Underemployment and high levels of part-time employment amongst carers, reflect the challenges that families face in balancing care with paid work and what can be a lack of support from social and other services. Finally, while Scotland is somewhat more equal than the UK as a whole, it is still more unequal than many other OECD countries. It is increasingly recognised that inequality is a drag on economic performance.
9. Currently, social protection expenditure as a percentage of GDP is lower in Scotland than the UK and comparatively low compared to the EU 15. This places Scotland in a positive position regarding affordability and increases the potential for investment for future sustainability. The choice facing future independent Scottish Governments is to decide how to use its resources to obtain the best results for its people. Our analysis of the international evidence is that to transplant an approach which works in one country into an independent Scotland will, more than likely, fail. Scotland needs to find its own path.
10. The current welfare system is too complex and too remote. It can be impersonal and can work against the needs of citizens who need its support. It is increasingly losing the trust of both those using the system and wider society. In this respect there is a difference between the UK and the Scottish public. It would seem from the evidence that there is still a stronger level of support in Scotland for an effective system of social security.
C. Social security: Principles and Purpose fit for Scotland's future
11. We set out our views on the Purpose, Principles and Partnership necessary to create a trusted and effective social security system.
12. In terms of Purpose, we recommend that a new system must provide a safety net through which individuals cannot fall and insurance against life events. We also recommend it should have a more powerful third purpose: to maximise the life chances of every individual. In summary, to provide a springboard as well as a safety net.
13. A system designed with this Purpose needs more detailed principles to guide the development of policies. We recommend the new system should be based on the following three overarching principles: it should be fair, personal and simple. These are held in tension and a stretch towards one, for example, simplicity, will almost inevitably mean a pull away from another, such as a focus on detailed personal circumstances. Trade-offs between these three are therefore inevitable. In the early years of independence, Scotland should focus on emphasising fairness and personalisation. In the medium to longer term, we would want to explore how to also achieve simplicity.
14. We set out nine more detailed propositions and the reasons for them, which underpin our three high-level Principles.
1) Treat people with dignity and respect.
2) Build trust and support by being transparent.
3) Be responsive to how an independent Scotland, its society, economy and people change.
4) Be sustainable in the long term.
5) Empower people to take control over their circumstances.
6) Offer choice as to how benefits and services are delivered.
7) Build on the assets of individuals, families and communities.
8) Promote work as a realistic goal for anyone who can and provide effective support for those who are prevented from working.
9) Support integration of benefits and services where this makes sense.
15. We believe a social security system should explicitly recognise the relationships which exist between citizens, employers and the State. We propose an explicit Partnership between them to further guide the development of policies of future Governments. It will be civil society (the voluntary sector, trade unions and business associations and the like) that will provide the oil to allow this partnership to work effectively.
16. We have recommended a draft Social Security Partnership for Scotland for consideration. This sets out the role of each Partner as it could be framed. We explore the value of social investment - investing in people and supporting them to participate fully in life, whether in or out of work.
D. Social investment-led social security polices
17. We set out a route map for change. We have divided the journey into three sections. The short term (up to five years), the medium term (five to ten years) and the long term (over ten years).
E. Starting reform immediately: actions for the short term
18. We believe it is important that people have certainty in the early years of independence while the system is being transformed. In line with our first report, we recommend that on independence people should continue to receive the benefits and tax credits they are currently entitled to.
19. In terms of the levels of those benefits, we recommend that the first Government of an independent Scotland re-establishes the link between benefit levels and the cost of living, with benefits and tax credits (which are currently subject to a 1 per cent annual increase) being increased each year by the Consumer Prices Index of inflation.
20. Our recommendations are designed to create a more sustainable system, and if implemented, would negate the need to establish a separate welfare cap. The current UK welfare cap on Annually Managed Expenditure (AME) would be abolished. Instead we recommend that independent Scottish Governments should report twice during their term of office to the Parliament on the social security budget.
21. One of the early tasks for the first Government in an independent Scotland will be to embrace and exploit the goodwill, energy and commitment which exists for change. We recommend that a National Convention on Social Security is established at the beginning of 2015. Its membership would be drawn from employers, citizens, faith groups, trade unions and voluntary organisations, amongst others. The Convention's task would be to consider our draft Social Security Partnership set out in Chapter 3 and agree its terms, examining closely the issues which lie behind it and providing its views on any changes to what we suggest.
22. We recommend the introduction of a new Social Security Allowance or 'SSA'. The SSA would initially bring together a number of existing benefits but it would not include Housing Benefit. The so-called 'Bedroom Tax' would also be abolished.
23. We recommend allowing the household to choose how often to receive the SSA across a month.
24. We also recommend extending that choice to who receives the SSA, but with a default that this would go to the main carer (where this is relevant), not the main earner. This will ensure that women are not disadvantaged by the arrangements we propose.
25. Currently Carer's Allowance is the lowest income replacement benefit at £61.35 per week. This compares to Jobseeker's Allowance for those aged 25 and over of £72.40. We have concluded that this unacceptable anomaly in the system should be tackled as soon as possible. We recommend that the Carer's Allowance should be increased and paid at the same rate as Jobseeker's Allowance.
26. A key aspect of the SSA is the link it will have with assessment. We recommend that early identification and agreement of an individual's needs and goals should be the starting point. For some, we recognise that the support they need will be minimal or easily identified, while for others it may require input from other individuals and agencies, and take much longer. Our new approach proposes an assessment that is built around the individual with the intention of 'getting it right first time'.
27. Given that most people re-enter work quickly after having lost their job, we recommend that the current resources should be more heavily targeted at supporting the longer-term unemployed and those at risk of becoming long-term unemployed. A revised agreement, replacing the current 'claimant commitment', would outline not only what activity an individual is expected to undertake to move closer to the labour market or enter work but significantly, clearly explain the support which he or she can expect to improve their prospects for finding and staying in work. We recommend that the current system of sanctions is abolished and instead replaced with a system that is more proportionate, personal and positive.
28. Given that labour markets are local, we recommend ending the Work Programme and replacing it with new programmes to help people find and stay in work which are driven by and designed around long-term local labour market challenges. These programmes will be developed by local and regional groups who know the people they are working with best.
29. When people do enter work, they should expect to be fairly rewarded. We have a number of recommendations surrounding pay. Governments in an independent Scotland should lead by example as has been the case with the current Scottish Government. This is why we recommend that the first Government of an independent Scotland should have as its goal, that all parts of the public sector will pay the Living Wage by the end of the first Parliament of an independent Scotland.
30. We also recommend that, subject to certain conditions being met, the National Minimum Wage should begin to rise (in phased amounts) to equal the Living Wage. A clear timetable for full adoption should be set out by the first Government of an independent Scotland. We recommend the payment of Employers' National Insurance should reduce to help businesses make this transition.
31. For those for whom work is a realistic goal, but who need greater support, we do not believe that the Work Capability Assessment (WCA) is the right way to assess their needs. We recommend that the WCA is scrapped and outline a series of new features of the assessment process which should take its place. The new assessment should be carried out by a clinical professional and should be developed in equal partnership with professions, organisations which represent disabled people and people with health issues, and the individuals themselves.
32. We recommend that an interim set of changes are made as quickly as possible and which address the most serious issues with the WCA before it is replaced. We further recommend the creation of a new Work Opportunities Service.
33. On independence, some people in Scotland will have already been re-assessed for Personal Independence Payment (PIP), the replacement for Disability Living Allowance (DLA). Others will still be claiming DLA. In the short term, on independence, we recommend that the Scottish Government undertakes a detailed consideration of how an independent Scotland - as it brings together services which are reserved and devolved - should support individuals with a disability or illness, and those who care for them. It may wish to establish an independent group to carry out such a review. We recommend that the review be asked to come up with detailed recommendations for replacing DLA and PIP with a new social security benefit for disabled people.
F. A strategic focus: medium-term priorities
34. As the welcome success in tackling pensioner poverty over two decades has demonstrated, it is possible to find solutions to large scale strategic challenges. We believe that too many of those who cannot ever reasonably have access to good work because of disability or illness face issues of long-term poverty and hardship. On independence, Scotland must look more broadly at the support on offer to these groups across the tax system, the social security system and through health and social care services in particular. We recommend that a focus on those with long-term disability and illness becomes a strategic political priority for an independent Scotland over the medium term.
35. An independent Scotland could take a new and integrated approach to support for housing, including more investment in social housing. Up-front investment in the supply of affordable housing has the immediate benefit of increasing housing supply, as well as generating positive economic effects. Over the longer term, this investment also helps to ensure the Housing Benefit bill is sustainable.
36. We believe it is important to strike the right balance between supporting a well-functioning private rental market and preventing excessive rents that can arise through pressures in the private rental sector in areas of high demand and low supply. This means looking at the nature of tenancies, for example, giving tenants in the private sector longer-term tenancies than generally exist at present, as well as building into tenancy agreements that rents should increase in line with inflation but not above it, at least for the duration of a tenancy.
37. We know that social security policy in every country evolves and adapts over time. Changes can happen due to a whole range of factors, many of which are hard to predict. When this happens, Governments often have to react quickly with new policies whose outcomes cannot be predicted.
38. In order for Scotland to be as well-prepared as possible for changes which occur, we recommend that Scotland's social security system - policy, delivery and legislation - should be placed under independent and regular scrutiny by a new independent Social Security Commission.
39. Finally, a new set of institutions may be needed if our vision is to be realised. We recommend a series of criteria against which any options for change should be judged.
G. Changing tack: different long-term possibilities
40. In the long term, as trust and confidence in the system grows, momentum for further reform may build as people start to feel more confident about achieving successful change. In our discussions, at least two very different long-term visions were suggested. These were: a form of a contribution-based system; and a basic income for all.
41. The first of these models would take a highly individual approach to social security, tying benefits to personal contributions and savings. The idea of personal welfare accounts is an illustration of this approach. The second vision would seek to abandon means-testing and complexity. The idea of a citizens Income is an illustration of this approach. If Governments in an independent Scotland wished to explore these ideas, we recommend that a more detailed and evidence-based examination would be required.
H. Additional recommendations
42. For completeness, our additional policy recommendations can be summarised as follows:
- We recommend that policies and programmes designed to help people find, and stay in, work should be driven by and designed around long-term local labour market challenges.
- We recommend that instead of only working with people on an individual basis, groups would also be encouraged to develop initiatives within households, local communities and neighbourhoods.
- We recommend areas for consideration by the Working together: progressive workplace policies in Scotland review, chaired by Jim Mather.
- We recommend that the proposals of the Commission for Developing Scotland's Young Workforce, established by the Scottish Government in January 2013 and chaired by Sir Ian Wood, are considered as a matter of priority by the Scottish Government.
- We recommend that support should stay with some people as they make their first, often tentative, steps into work.
- We recommend that an independent Scotland pilots new approaches as part of a different assessment process.
- We recommend that the Work Opportunities Service would have, as part of its remit, a requirement to work closely with employers, providing them with advice and support on issues such as better structuring of jobs and adapting facilities for disabled people.
- We recommend a clear narrative setting out the benefits of having a more diverse workforce should be a strong part of an underpinning employer engagement strategy.
- We recommend that, building on the analysis in our first report, a detailed scoping exercise is undertaken by the Scottish Government on independence to specify the resources, functions and services related to the delivery of benefits which Scotland would inherit. This would provide a solid basis from which the decisions on delivery can be taken.
43. In each of the last five years, social protection expenditure as a percentage of GDP has been lower in Scotland than the UK and comparatively low compared to the EU 15. Using UK Government data we can see that social protection expenditure accounted for 15.5 per cent of GDP in Scotland and 16.0 per cent in the UK in 2012-13. Scottish expenditure has consistently been below the EU-15 average from 2005 to 2012.
44. The Department for Work and Pensions (DWP) estimates that Scottish benefit expenditure in 2018-19 (in 2012-13 prices) would be £17.9 billion which is lower than our estimate of £18.0 billion. Taking DWP and HMRC administration costs together, the total costs for administering benefits in Scotland are forecast to fall gradually from £0.7 billion in 2014-15 to £0.5 billion in 2018-19.
46. The general direction of our policy proposals is to provide a system of social security which supports people into good work. The ongoing administrative costs of these policy proposals are expected to be neutral in the beginning as change is based primarily on making better use of existing resources through offering a more personalised service and better integrating benefit, employment and training activities with the individual at the heart of what we propose. The cost implications of potential long-term reforms are more variable. We believe savings could be achieved by the more effective use of existing systems and processes. Nonetheless, we would expect the sustainability of the system would be a consideration in the work of the National Convention on Social Security. Over the longer term the expectation is that costs will reduce as individuals are successfully assisted into employment.
47. We have used IPPR & Resolution Foundation estimates on the gain to the UK Exchequer of increasing the minimum wage to the same level as the Living Wage. Assuming that Scotland takes a proportion share of these savings, the Scottish fiscal position would improve by around £280 million, before we consider any indirect effects.
48. In terms of the long-term options around personal welfare accounts and citizens Basic Income, there are a wide range of possibilities in terms of design. The costs to the Government could range from marginal to more substantial. While we do not recommend either approach at this time, we do provide an indication of what these approaches might cost.
49. In the short to medium term, we believe our proposals will be more successful in helping people to get into, and stay in, better paid work. They will concentrate social security resources on those most in need. Over time this should also help to reduce the overall cost of the working-age benefits bill, freeing up resources that can be invested in further improving services which support, thereby creating a virtuous cycle of helping greater numbers of people towards and into employment.
50. Our proposals aim to build a system that is personal, fair and simple. We believe that the purpose, principles and partnership that we set out in this Report are the basis on which to build trust - among employers, citizens and communities - in a social security system designed to meet the needs of an independent Scotland.