Building a New Scotland: Social security in an independent Scotland

Considerations and choices for a future social security system

Social security models

Scottish independence offers a rare moment in the history of any country to develop a new social security system and to think afresh about what social security could mean for all of us. To learn from what isn’t working in the current system and make informed decisions about the type of society we want to be and create a social security system that supports that vision.

Developed nations each have their own different systems which reflect how they have developed over time, their industrial structures and their political preferences and choices.

However, one enduring and widely accepted categorisation^[99] has identified that there are three distinct approaches to social security:

• a liberal approach – characterised by modest means-tested benefits, targeted at low-income recipients and often associated with stigma.
• a conservative approach – prioritising traditional family-based assistance.
• a social democratic approach – universal systems based on an equality of high standards and not an equality of minimal needs. Costs of caring for the young, ill and old are socialised, resulting in high social costs which in turn incentivise full employment (i.e. the durability of the model rests on maintaining a high employment rate to sustain high social spending).

Most national social security systems draw on elements of each of these different approaches, and no existing system is a pure version of any of the categories. For example, the Nordic countries take a predominantly social democratic approach but also include elements of a liberal approach – such as means-testing. Countries with a more conservative approach also incorporate aspects from both liberal and social democratic approaches.^[100]

This Scottish Government believes that, with the full powers of independence, we could begin to transition from the UK’s largely ‘liberal’ approach to a more ‘social democratic’ system. We could build a system to protect all of us, especially the most vulnerable in society, those of us living in poverty, the youngest and oldest of us, our unpaid carers, and those of us who are sick or disabled.

The social democratic approach is often exemplified by the social security systems in Nordic countries, which although unique to each country, are collectively seen as modern and progressive.^[101] These include a more universal approach to social security entitlements with levels set to provide income security for all, integrated health and social care models, high investment in active labour market policies often delivered in strong partnership working with employers and trade unions, and high employment levels – particularly for women – supported by high quality, subsidised childcare.

There are many apparent advantages to the Nordic approach, with outcomes including high levels of prosperity, productivity and employment and low levels of income inequality, and higher levels of educational attainment, life expectancy, social mobility and general positive wellbeing – often coming top of the table in the ‘world’s happiest countries’ lists.^[102]

These nations are in effect demonstrating the benefits of a wellbeing economy, with a clear focus on building a fairer, happier and wealthier society.

While these countries tend to have higher rates of direct taxes, a proportion of social expenditure is also financed by employers and insured through contributions and special taxes. As highlighted earlier in this paper, the most recent Scottish Social Attitudes Survey tells us that most people in Scotland think that spending on social benefits should be increased. The first publication in the ‘Building a New Scotland’ series argues that the world’s most enduringly successful societies – as shown by a range of indicators – are independent countries of Scotland’s size which have successfully married economic dynamism with social solidarity. Relatively high social spending and relatively equal income distributions have not proved barriers to robust economic development.^[103]

Social security and a dynamic economy

It is widely recognised that the next decade and possibly beyond will be characterised by significant, and perhaps unprecedented, economic change. As the UK continues to confront the specific problems caused by Brexit, it also shares common challenges with all advanced nations:

• the transition to net zero will create employment in lower carbon sectors and reduce employment in higher emission sectors. The transition is likely to generate significant challenges around industrial development, labour supply and regional development.
• demographic change will result in a higher ‘dependency ratio’ where there are fewer people of working age compared to those in other age groups (children and older people); this will increase demand for labour-intensive services such as health and social care.
• technological change will continue to influence the pace and direction of employment growth, perhaps more dramatically than in the recent past.
• the disruption to labour and product markets caused by the Covid-19 pandemic is likely to continue affecting the economy in at least the short term.

It is in this context that future governments of an independent Scotland must consider how a move from the ‘liberal’ model of UK social security towards a more ‘social democratic’ model could be achieved. Properly designed and implemented, a Scottish social security model could help individuals, families, communities and the economy as a whole cope much more effectively with the current period of profound economic and labour market transition. Governments in an independent Scotland would need to think coherently across economic and social objectives.

Key considerations would include the following:

1. Addressing the inadequacies of the UK system

The earlier section on Social Security in the UK set out the inadequacies and inherent unfairness built into the current UK social security model. A recent Resolution Foundation report concluded that the UK’s ‘existing social security system is not well-placed to meet the scale and nature of challenges ahead’. Two ‘significant drawbacks’ of the current system are that ‘it provides a highly variable and often very weak degree of income insurance and that it fails to deliver adequate living standards’.^[104]

Building a new social security system that eradicates all the inadequacies of the current UK system and delivers an integrated, person-centred, system of support for carers and disabled people, would inevitably be a long-term project. It would involve choices over how to allocate national resources, while protecting existing incomes. The current levels of social security do not provide people with sufficient income to live sustainably and to afford life’s essentials – such as food and utilities. This has real-life impacts on the health and wellbeing of those who are relying on social security – which has much wider impacts on the economy, by potentially removing people from the labour market and impacting on health and social care services.

Even where benefits are devolved, as with the disability and carer benefits, the interactions with the reserved benefits system places constraints on how these powers are used in Scotland.

Nevertheless, the first government of an independent Scotland could prioritise where it wished to invest to deliver a stronger system, with better outcomes for everyone; families and households with low incomes, unpaid carers and disabled people.

2. Supporting the development of a stronger economy with independence

In earlier ‘Building a New Scotland’ papers, the Scottish Government set out its plans for the economy of an independent Scotland, bringing together economic dynamism and social solidarity: the best-performing independent countries of Scotland’s size demonstrate that a strong social safety net is a foundation of a dynamic, innovative and productive economy, rather than a barrier to it. These countries balance high overall social spending, relatively high out-of-work benefits and particularly high spend on labour market policies with consistently strong performance on international indices of productivity and innovation.^[105]

It is essential that the social security system underpins the development of this new approach. Supporting people to take entrepreneurial risks, without fearing big reductions in income if their ventures fail, would help reinforce the view that an independent Scotland would be an open, outward-looking economy.

Similarly, the best-performing countries of Scotland’s size are able to maintain public support for their highly internationalised economies, even where job losses happen, because of the strong support provided to displaced workers through relatively high benefits and access to quality retraining opportunities.^[106]

Also, the significant changes in the structure of employment in Scotland – expected over coming decades due to demographic and technological change as well as the drive towards net zero – means that it will be particularly important to align our social security system with labour market, skills and retraining policies. The Scottish Government’s commitment to a just transition to net zero can be more easily achieved with full social security and employment powers.

3. Alignment with labour market and wider social policies

One aspect of the Nordic nations’ ‘social democratic’ model of social security is the focus on funding labour market policies adequately and implementing them fully. When labour market and social security policies and approaches are closely connected, this helps those looking for work find better-quality, more-sustainable employment.

As discussed earlier, UK policy has tended to be designed in the belief that generous benefits will reduce work incentives and that the priority is moving people into paid work as quickly as possible, with less emphasis on whether the job is the right job for the individual’s skills and abilities.^[107] In contrast, experience in the comparator countries suggests that higher levels of unemployment benefits help to cushion the impacts of losing a job on household incomes. Higher benefit levels can also support people to move back into employment, at a similar income level, more quickly.

In the Nordic model:^[108]

• Social Security payments offer a higher level of income replacement so that people’s spending power is protected, they can still pay their bills and they are still buying goods
• people able to work are expected to do so and to contribute when they can, supported by family-friendly working practices, affordable and accessible childcare, and funding for learning and retraining
• effective labour market policies, and adequate social security, allow people to take time to find a job that suits them, which leads to better ‘matches’ with employers and supports sustainability of the employment^[109]
• people who are sick, disabled or suffering from occupational injury receive very high levels of support: both through, for example, cash benefits, rehabilitation and employment training. In 2021, Norway, Denmark, Sweden, Finland and Iceland were 5 of the top 6 OECD nations on ‘public spending on incapacity’^[110]
• as a result, when people move back into work it tends to be at a similar income level
• the stronger financial safety net also gives workers more confidence about changing jobs more often – this in turn can lead to higher wages^[111]

While the Nordic model is clearly attractive in many ways, it would not be practical to adopt a Nordic version of social security wholesale into an independent Scotland immediately. Nevertheless, it would be possible to begin to make changes where these would be beneficial to people, the economy and society and to move towards an approach that learns from the Nordic model.

Towards a new social security system

Indeed, this Scottish Government has begun to make considerable changes to social security, as we have already seen. A clear pathway to a different future is already emerging, based on the progress made on the devolved benefits and the uniquely Scottish approach to social security.

Engagement and consultation so far on the devolved benefits suggests that this could give Scotland a full social security system, underpinned by the social security principles and the charter including:

• a human rights-based approach, treating people with dignity, fairness and respect
• a system that is an integral part of a wellbeing economy
• a system that is able to tackle poverty and the causes of poverty effectively
• a system that provides an integrated, person-centred model of social security support for carers and disabled people
• a system with adequacy built in, delivering financial security for all through a Minimum Income Guarantee

As set out in this government’s proposals on the economy, future governments could use the full powers of independence to build a fairer, more successful and more dynamic economy. A fairer more effective social security system would be central to that ambition. Fair work with better pay and conditions, a minimum wage that better reflects the cost of living in Scotland, better access to flexible working, and higher minimum standards for statutory sick pay and parental leave would be supported by a strong and effective social security system.

But social security isn’t all about getting people back into paid work – it also needs to ensure that everyone, regardless of personal circumstances, has access to an income that provides a decent standard of living. Disabled people, those in ill-health, and carers, all face additional costs to reach a basic standard of living. A fairer Scotland could prioritise building a coherent, person-centred system of support for all. This means reducing the complexity of the current system, streamlining and automating eligibility for support.

Findings and recommendations from the Independent Review of the Adult Disability Payment could form a starting point for maximising future opportunities to improve disability benefits and to establish a person-centred system of support for disabled people. The Scottish Government’s plans for reviewing the Adult Disability Payment demonstrates its ongoing commitment to improving the experience of disabled people in Scotland. Independence would allow this to be progressed without the constraints of delivering within a wider reserved system of support.

A comprehensive social security system could also build on the work already in place to recognise the contribution that unpaid carers make to ensuring people throughout Scotland get the care they need and to supporting the Scottish economy. We want Scotland to be a place where all carers are recognised and valued for the contribution they make, where they are enabled to provide the right support for the people they care for while living full, rounded lives. No-one should need to put their aspirations and ambitions on hold because they are providing care to a loved one. The Scottish Government’s planned improvements to carer benefits are being taken forward as part of the National Carers Strategy so that a strategic approach is taken to supporting carers, ensuring that their experience as carers is reflected in all of the services they use. This includes reviewing the earnings threshold for Carer Support Payment to ensure it is not a barrier to carers staying in, or taking up, employment.

With independence, future governments could target resources to where they are most needed to meet these aspirations. They would be able to legislate to provide essential support at different life stages, creating a comprehensive safety net that any of us might need to call upon at any point in our lives.

Future governments could design a system where there is ‘no wrong door’ to getting the right kind of support. If we find ourselves in difficulty for whatever reason, it shouldn’t matter where we go for help – a local authority, Social Security Scotland or a third sector organisation – we should get all the support we are entitled to in the most efficient and joined-up way possible.

For those who are able to take up paid work, social security support should align with and build on existing employability services – Fair Start Scotland and ‘No One Left Behind’ – recognising that some people are further from the job market than others. Support should ensure that those seeking paid employment are suitably supported by basic services, including childcare, health services and transport. Family-friendly, accessible work practices could help make sure that work is sustainable.

People should be able to transition into paid employment in a way that means that they don’t lose income by doing so. We can do this by making sure that:

• the minimum wage is part of a package of support that enables a decent standard of living for all household types
• income from benefits only begins to reduce when a sufficient level of earnings is received and reduces at a rate which avoids pushing households into debt as they move back into paid work – for example, when managing upfront costs such as travel and childcare
• employment practices support people to sustain work and their incomes through ill-health or disability or taking up a caring role
• barriers are removed for anyone who might need to access social security, regardless of any protected characteristic they may share

Support should also be available when incomes drop quickly or unexpectedly, for whatever reason, to prevent people from falling into poverty and harmful cycles of debt. The system should be built to cope with changes on a personal, regional or national level; it should be future- proofed against the impact of global shocks, such as the Covid-19 pandemic and the ongoing cost of living crisis so that there is no need for emergency top up payments.

To achieve all this, a future social security system needs to be an integral part of a fairer Scotland and a dynamic wellbeing economy.

Minimum Income Guarantee

This paper has outlined key aspects of a social democratic model of social security as typified by the Nordic model and has set out the ambition and the challenges in the decades ahead to create a fairer, more equal Scotland. A range of options would be available to future governments to deliver on that ambition. One possibility that the Scottish Government is currently exploring is a Minimum Income Guarantee, sitting at the heart of strong, wellbeing economy.

Work to explore the potential for a Minimum Income Guarantee is taking place in this parliamentary term. With cross-party support, a Strategy Group and an Expert Group have been set up to look at how such a guarantee could be developed under current powers and what this could like look with the full powers of independence. The Minimum Income Guarantee goes beyond the very basics provided through an ‘Essentials Guarantee’ moving on from support which provides the very basics required to survive, to one which enables people to thrive, and live with dignity.

The Expert Group published an interim report in March this year setting out their work to date and initial steps towards a Minimum Income Guarantee.^[112] That report concludes that the current UK-wide social security system is inadequate and is failing the people who need it most.

The report acknowledges that it may not be possible to realise the full potential of a Minimum Income Guarantee under the current devolution settlement, but it sets out a bold vision for a universal guarantee of financial security – making sure that we all have enough money for housing, food and the essentials that allow us to live a decent, dignified, and healthy life. This includes the following points:

1. A Minimum Income Guarantee is an ambition that would enable all households to live with financial security. The guarantee could be delivered through employment and employment support, social security, the tax system, and by reducing or removing essential costs that can be met through fair and equal access to wider collective services, such as social care and childcare. This would also include a targeted payment for anyone that falls beneath the Minimum Income Guarantee level.

2. The Minimum Income Guarantee level would be set at a higher rate than UK Government benefits and be reviewed regularly to respond to real changes to the cost of living. One potential measure of reasonable living income, when considering the adequacy of benefits, is the Minimum Income Standard developed by Loughborough University. This work uses research with members of the public to identify what items are essential to supporting an acceptable standard of living.^[113] The results show what different households need in a weekly budget and the earnings required to achieve this.

3. Most of us, through most of our lives, would achieve the minimum income level through access to fair, paid work. Future governments could make it easier for employment to deliver this minimum level with new powers on employment law and the minimum wage, legislating for fair work practices. This would also help to make progress on equal pay for women and marginalised groups.

4. A Minimum Income Guarantee payment would top up the income of households where it falls below the Minimum Income Guarantee level. It would provide support for those not able to meet the income level through paid work or other income, whether that is in the short term due to sickness or unemployment or longer term due to caring responsibilities, disability or age.

5. A Minimum Income Guarantee would provide a safety net for everyone and could protect against future shocks like the current costs of living crisis.

A Minimum Income Guarantee has the potential to be transformative in the fight against poverty and inequality. It would aim to be simple and accessible, and offers the potential for current Scottish income replacement benefits to be brought within the Minimum Income Guarantee as an integrated system of support. For example, the Scottish Child Payment may no longer be treated as a separate additional payment, but instead be part of child or family payments within the award, which could also incorporate other benefit payments for children.

Other payments, such as the Best Start Grant, could be paid automatically to qualifying families at appropriate times. There would be no limit on the number of children in a household who might be eligible for such payments. And if a family’s income increases, a system of fairer taper rates could help support transition and avoid harmful drops in income.

Existing, non-means tested benefits, such as Adult Disability Payment and Child Disability Payment, which help with the additional costs of being disabled, would continue to be paid in addition to any Minimum Income Guarantee payment, without the need for work assessments. Wider disability premiums and payments would also be ‘added on’ and we would look at how these could be simplified and streamlined to ensure that the overall support provided was sufficient, coherent and accessible.

It would also take into account the needs of different groups of people living in Scotland, with equality built in right from the start of policy development, considering intra-household inequalities and making sure that adults have access to an independent income.

This year’s Programme for Government also asked the Expert Group to consider the specific needs of unpaid carers within the Minimum Income Guarantee model.

The Expert Group is expected to publish a final report in 2024 with recommendations for early actions and longer-term ambitions including how the level of a Minimum Income Guarantee should be set – based on need and cost of living – and the legislative and delivery requirements. It is also expected to set out the economic case for this ambitious change.

And such fundamental change takes time. A lot has been learned through the process of devolving the current Scottish benefits and the most important thing is that, following a vote for independence, people continue to receive their payments on time and in full. Therefore, the Scottish Government would work closely with the UK Government to ensure that this continues and that the journey to a full Scottish benefit system is managed safely and securely.

Most importantly, Scotland’s social security system can be designed and delivered based on our existing social security principles of dignity, fairness and respect. The Scottish social security system would eventually replace the harmful, inadequate and mistrusted Universal Credit with an approach that we can all rely on.

This Scottish Government would use the findings from the Expert Group to develop and prioritise early actions and potential pilots of a Minimum Income Guarantee for priority groups during the transition period.

Future governments could also consider the potential benefits of developing a Universal Basic Income, if they wished. Unlike either an essentials guarantee or a Minimum Income, which would both be targeted to those on lower incomes, a Universal Basic Income would provide a basic level of income to all, without condition and regardless of other income and resources.

A previous Scottish Government-funded feasibility study considered whether a pilot of the UBI approach was possible under devolved powers. The study concluded that a pilot of the approach was desirable but could not be delivered without support from the UK Government.

With independence, the Scottish Government would commit to developing the right approach to social security for Scotland – one which at a very minimum allows people to cover the essentials they need to survive, but with time and resources could go on to develop something much more ambitious, something which addresses the fundamental structural inequalities and supports a dynamic economy – starting with addressing the fundamental issues with the existing UK system, testing and piloting approaches to find the right fit for the long term.