4. The effect of welfare reforms on Scottish social security spending
We have modelled the effect of welfare policy reforms on social security spending using Scottish Government’s in-house microsimulation model, which is based on Family Resource Survey (FRS) data.
This model allows us to examine the effects of several key welfare reforms on the assumption that the full rollout of UC has taken place. The full effect of all welfare reforms dating back to the introduction of Welfare Reform Act 2012 will be much greater than the impacts set out here. However, due to the current sample restrictions and model limitations around the legacy benefit system, it has not been possible to model those on a comparable basis.
We compared a baseline scenario of the existing, post-welfare reform policy environment to four counterfactual scenarios in which major benefit cuts did not take place. These scenarios covered:
- The absence of the benefit freeze.
- UC taper rates remaining at 65%, while 2015/16 UC work allowances were simply uprated by CPI.
- The absence of changes to the UC first child premium, and non-introduction of the two-child limit.
- And the combination of the scenarios above.
To capture the full effects of UC work allowances and taper rate reforms, our modelling assumes the full rollout of UC has taken place, while children who were born after the start of April 2017 are affected by the two-child limit. By cutting annual social security spending by £300 million in Scotland, the benefit freeze is estimated to have the largest impact of the reforms we examine, making up around two thirds of a combined £500 million annual reduction. The full results of our analysis are presented in table 3.
Table 3 – The Scottish benefit spending reductions due to UK Government welfare reforms since 2015
|Welfare reform|| Annual welfare
|Introduction of the benefit freeze||£300 million|
|UC work allowance and taper rate changes between 2015/16 and 2019/20||£100 million|
|Removal of the first child premium and introduction of the two-child limit||£100 million|
Source: Scottish Government modelling. All figures are rounded to the nearest £100 million.
In reducing Scottish welfare spending by an estimated £500 million per year, these post-2015 welfare reforms have greatly reduced the generosity of working-age benefits. However, these represent a relatively small proportion of the larger suite of UK Government cuts which have taken place over the last ten years. Our 2018 report estimated that these cuts amounted to a £3.7 billion reduction in annual spend in 2020/21. We plan to update this analysis in light of subsequent changes to UC policy and rollout in our future publication.