Scotland politics

Scottish independence: Welfare reforms 'possible but potentially costly'

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Media captionWelfare spending in Scotland is still higher than across Great Britain as a whole

Independence would allow Scotland to reverse recent "poorly-designed" reforms to the UK's welfare system, according to a think tank.

The Institute for Fiscal Studies (IFS) said independence - or the devolution of benefits policy - would enable "radical reform" to be carried out.

But its report on benefits and pensions warned Scotland's population was aging faster than in England and Wales.

This could bring "somewhat burdensome" welfare costs in the future, it stated.

The IFS looked at the total spending on welfare in Scotland, and examined the effect of UK government tax and benefit changes.

Slower rate

Its report said: "If Scotland becomes independent, or if benefits policy is devolved to Scotland within the United Kingdom, there would also be an opportunity for its government to reconsider a number of recent poorly-designed reforms.

"These include the 'benefits cap'; the capping of increases in local housing allowance rates at the rate of CPI inflation; the decision that support for low-income families in paying their council tax is to be kept separate from universal credit; and the way in which child benefit is withdrawn from families containing someone with a high income.

"In each instance, it seems likely that a better-designed policy affecting a similar group of people could save a similar amount of money."

The report found that the amount spent on benefits per person had increased at a slower rate in Scotland than in Great Britain as a whole.

Benefit spending per person in Scotland was estimated to have been £3,238 in 2011-12, which was 2% higher than the average across Britain.

But this was still less than the amount spent per person on welfare in Wales, the North East of England, the North West of England and the West Midlands.

In 2005-06, the gap between Scotland and the rest of Great Britain was 7%.

Total benefit spending in Scotland amounted to £17.2bn in 2011-12, the last year for which full figures were available.

This was about 30% of all government spending in Scotland and 11.4% of GDP

The three most expensive benefits in Scotland were the state pension (£6.3bn), child and working tax credits (£2.2bn) and disability living allowance and attendance allowance (£1.9bn).

For Great Britain as a whole, the third most expensive benefit was housing benefit.

Expenditure on disability benefits per person in the population was 22% higher in Scotland (£593) than in Great Britain as a whole (£485).

Spending per person was also 4% higher on old-age benefits such as the state pension.

'Major redesign'

On the other hand, spending per person on housing benefit in Scotland was about 12% lower, and spending on child benefits and tax credits 9% lower, than the average for Great Britain as a whole.

The report concluded: "Given the concentration of benefit spending on the elderly, this relatively rapid ageing means, all else equal, that spending on benefits would rise more quickly in the coming years in Scotland than in Great Britain as a whole.

"This means that funding the benefits system in the decades ahead may prove somewhat more burdensome for an independent Scotland.

"However, independence - or the devolution of benefits policy - would also provide Scotland with an opportunity to redesign its benefits system to reflect the priorities of the Scottish people, and to reassess some aspects of current UK policy that make little economic sense.

"But any major redesign of the system would either require Scotland to spend rather more on benefits than is spent now or else create large numbers of losers, who will typically have fairly low incomes."

The Scottish government has said it would abolish what it calls the bedroom tax, which sees housing benefit payments reduced if the government decides spare rooms are being subsidised by the taxpayer.

It has also promised to match a current coalition pledge to protect pensioner benefits with a so-called triple lock - where pensions increase by the rate of the Consumer Prices Index (CPI) or 2.5% after the introduction of a flat-rate state pension.

But the IFS report's author David Phillips stated he did not believe a "slightly more generous" system, such as that envisioned by the SNP, could be sustained in the long term without "discretionary tax rises or further cuts to spending on public services."

Reacting to the report, Scottish Finance Secretary John Swinney said: "Social protection, which includes expenditure on welfare, is currently more affordable in Scotland than the UK as a whole.

"With the boost to the working population that can be delivered by using the full economic levers of independence to grow the economy we can ensure Scotland's welfare policy fits Scotland's needs."

Secretary of State for Scotland Michael Moore said: "We've had a tough few years, but what this report really nails is the fact that, under independence, there would be huge cost pressures on an independent Scotland, particularly as our population is aging, and particularly because of the challenges we have in raising the money to pay for that increasing bill."

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