Indexing Scottish Welfare Payments: Evidence for the Welfare Reform Committee of the Scottish Parliament

Reports & Briefings
David Bell
The Scotland Bill contains many new powers for the Scottish Government but those relating to welfare have been the focus of particular interest. Much has been said about how they might be changed or improved to develop a distinctively Scottish approach to social security. The legisltion sets out how this might be paid for in the first year but little is clear after that. Under the “no detriment” principle, the budget of the Scottish Government will be increased by £2.5 billion when the powers are transferred or to the equivalent sum for the year when the transfer occurs. Thus, the Scottish Government will have sufficient additional funds to exactly meet the costs of the benefits over which it has gained control, assuming eligibility criteria and rates of payment are maintained at existing levels. This process will also leave the overall UK budget unaffected, since it effectively involves a transfer from DWP to the Scottish Government. Thus, neither the Scottish Government, nor the UK Government suffers detriment.
But how much will the Scottish Government receive in subsequent years? After these benefits are transferred, the Scottish Government will no longer be obliged to maintain their present structure. It can alter their design as it sees fit. Indeed, a strong expectation has been built up that these monies can be used to develop a “fairer” or perhaps more generous welfare system in Scotland. But the monies that will actually be transferred after the first year will depend on how the initial transfer of £2.5 billion is “indexed” in subsequent years. 
This paper was submitted to the Scottish Parliament's Welfare Reform Committee in September 2015.