Welfare spending

The Institute for Fiscal Studies has today published a report entitled “More spending on disability benefits and less on housing benefit per person on Scotland than in the rest of GB”.

The report finds that higher spending on old-age benefits and disability is offset by lower spending on housing benefit. It states that the ageing population of Scotland will mean that spending will grow more quickly than in the United Kingdom as a whole. Independence for Scotland would provide the Scottish Government with the opportunity to make reforms to its benefit system. However, an independent Scotland would have to spend more on benefits than is spent at the current moment in time or it may risk creating a group of “losers”.

The main findings of the report are as follows:

  • Benefit spending (including spending on tax credits and the state pension) in Scotland amounted to £17.2 billion in 2011–12, the last year for which full figures are available. This is around 30% of all government spending in Scotland and 11.4% of Scottish national income (including a geographical share of North Sea output).
  • Benefit spending per person in Scotland in 2011–12 is estimated to have been £3,238, 2% higher than the average for Great Britain as a whole (£3,176). This was lower than in Wales (£3,540), and the North and Midlands of England (£3,320), but higher than in London (£3,082) and the rest of the South of England (£2,962).
  • There are substantial differences in spending on different types of benefits. Expenditure on disability benefits per person in the population was 22% higher in Scotland (£593) than in Great Britain as a whole (£485). This, at least partly, reflects the fact that a higher proportion of Scots report having a disability or health problem that limits their activities than is the case in Great Britain as a whole.
  • Spending per person on housing benefit was around 12% lower in Scotland than in Great Britain as a whole. This reflects both lower private and social sector rents, and a larger fraction of people on housing benefit living in social housing.
  • Spending per person on old-age benefits was 4% higher than for Great Britain as a whole, while spending on child benefits and tax credits was 9% lower. But this reflects the different age profile of Scotland. The amounts spent on child benefits and tax credits per child and old age benefits per person aged 60 or over were essentially the same in Scotland as in Great Britain as a whole in 2011–12.

This report supports the financial case for keeping welfare generally at UK level as we have argued in Red Paper publications. The exception is Housing Benefit, which should be devolved because it is a key element of the already devolved housing policy. There would also be a proportionate financial gain because Scotland spends less than our population share of the the UK budget.

Given the UK Government’s damaging welfare cuts, it has been an important part of the Yes campaign’s case that independence would enable Scotland to take a different path. While that is clearly the case, what this paper shows is that such a path comes at a price and the SNP have to demonstrate that they are prepared to commit to paying that price. The evidence so far is that Scandamerica is their policy and that simply is not credible.



Business case for the UK?

There is more heavyweight analysis from the UK Government today in the latest publication in the Scotland Programme series, setting out the case against independence. This document focuses on the business and microeconomic framework. 

While this is a worthwhile series of papers, I have to admit to being irritated by the spin trailers days before it is published. Such partial views, without being able to check the full document, inevitably leads to less than thoughtful responses. A criticism often made of the Yes campaign, but on this occasion they can hardly be blamed. 

The paper makes a big play of the integrated nature of the UK and how Scotland’s exports are dominated by the UK market. £45.5 billion in total, double the levels exported to the rest of the world and four times as much as to the rest of the European Union. This close relationship is hardly surprising given the union, but it is also a growing link. Between 2002 and 2011, the value of Scottish trade with the rest of the UK increased by 62 per cent, compared with a 1 per cent increase in value of exports to the rest of the EU combined. 

The paper argues that while trade would continue, barriers, even within the EU, would make it more difficult for Scottish firms. This could be a concern for the service sector and financial services in particular, who sell a large proportion of their products to England. It is also a bigger issue for large firms and that might explain while SME’s appear to be more relaxed about independence. It does have to be said that smaller countries in the EU don’t have much problem trading with their bigger neighbours. In fact, as I have previously blogged, a small country like Denmark remains closely dependent on Germany and that would be the case with Scotland and England even after independence. You can change statehood rules, but you can’t change the essential geography. 

While personally I am ambiguous about EU membership, I suspect exporting businesses in Scotland would be more concerned about the pull the Tory Euro sceptics have on their party’s policy direction. EU withdrawal somewhat undermines the UK case on integration. 

The second big argument in this paper is economies of scale. I am less impressed by this as the UK is far too centralised and it reinforces the London effect. The claimed savings from economies of scale rarely materialise and are often masked by cost displacement. It is no small irony that the Scottish Government is guilty of the same offence. The longer minister’s are in power, the more the centralising tendency sucks them in. 

It was perhaps unwise to include postal services in this paper. Something of an own goal given the ConDem privatisation and post office closures. The postage stamp principle is more at risk from them than through independence. No other country in the world has attempted to separate post offices from the mail, for very good reasons. References to transport infrastructure is equally unwise, given the growing cost of HS2 that shows no sign of getting anywhere near Scotland. 

References to the UK’s ‘flexible labour market’ is not likely to inspire much support from trade unions for the No campaign. Many companies manage their labour force across several countries. Of course it’s more complex, but not a huge problem. The paper says, “There is evidence that the UK has the widest range of types and patterns of work for workers to choose from”. That will be zero hours contracts then! The problem with this argument is that most workers don’t have the power to ‘choose’ anything. It’s a big business, Neo-liberal case for the UK. 

The section on Corporate taxes ought to have been a plus for this paper as the SNP are in a complete mess on this point. However, the section is undermined by references to the advantages of competitive tax rates. Advantages that are certainly not reflected in the UK Government’s own budget documents

Compared with the issues raised around currency, monetary and fiscal policy, EU membership and aspects of defence – this is a pretty weak paper. However, it still raises lots of questions that the Yes campaign have struggled to respond to. Jim Sillars sums up the problem (a little harshly) in today’s Scotsman; “A comparison with the quality of the material produced by the Treasury and that produced by Salmond’s office in recent weeks, shows a difference between a Premier League and a Third-Division outfit. As for political ability in what is a new arena, the big league, for the SNP leaders (and especially their advisers), there is cause for concern.” 

However, there is little in this latest paper that will send many of us hurrying along to the ‘Better Together’ offices.