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Social Security assistance - effects of inflation: report 2020-2021

A report on the impact of inflation on devolved social security assistance as required under section 77 of the Social Security (Scotland) Act 2018.

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4. Policy position on uprating of Social Security Assistance

4.1 The Scottish Government's current policy position is to use CPI as the measure of inflation to uprate devolved social security assistance.

4.2 CPI is a National Statistic and has a reliable track record as a measure of inflation serving as ONS's headline measure of inflation until March 2017. CPI is used for inflation targeting by the Bank of England and also complies with the EU standard Harmonised Index of Consumer Prices.

4.3 CPI and CPIH are broadly similar measures, the only difference being that CPIH includes owner occupier housing costs. CPIH only regained its National Statistic status in 2017. As a result it has not yet established a reliable track record as a National Statistic and official forecasts are not available making policy planning and informed decision making more challenging.

4.4 RPI is recognised by experts as a poor measure of inflation and has been proven to be a more erratic measure than CPI. The UK Statistics Authority (UKSA) has put forward proposals to address the methodological shortcomings of the RPI by introducing CPIH data sources and methods into its production. At the Spring Budget the HM Treasury and UKSA launched a joint consultation seeking views on (i) whether UKSA's proposals should be implemented at a date other than 2030, and, if so, when between 2025 and 2030 and (ii) how to make UKSA's proposed methodological changes to the RPI in a way that follows best statistical practice. The UK Government's response to the consultation confirmed that the methodological changes to RPI as proposed by UKSA will not take place before the maturity of the final gilt linked to RPI in 2030.[18]

4.5 Finally, to complete the safe and secure transfer of existing clients from carer and disability benefits to devolved assistance, agency agreements with the Department for Work and Pensions (DWP) are required. While there is an agency agreement in place for DWP to administer the awards of existing clients, the Scottish Ministers are committed to annually uprate the assistance at the same rate as applied by the DWP which is the September CPI rate.

4.6 As a result, the CPI rate is considered the most appropriate inflation measure for uprating assistance. However, the Scottish Government is committed to keeping policy on uprating under review and will consider alternative approaches if there is a material change to inflation measures.

4.7 Examples of a material change would include:

  • The development of robust household and region specific measures by ONS. Currently these measures are being developed but it could take considerable time before they became National Statistics.
  • CPIH establishing a reliable record as National Statistic and official forecasts becoming available.
  • Methodological improvements to RPI that would align its methodology and data with that of CPIH which the UK government confirmed will take place after 2030.

Contact

Email: veronica.smith@gov.scot

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