The perverse case of what Scotland voted for countered by a government it rejected
A long read by stewartb
This is prompted by a recent (January 2022) report from the Fraser of Allander Institute (FAI), entitled ‘Modelling packages to meet Scotland’s child poverty targets: scenarios, benefits and trade-offs’. The FAI analyses the potential for the use of devolved policy levers by the Scottish Government as it aims to meet the target in the Child Poverty (Scotland) Act 2017 of reducing relative child poverty to 10% by 2030/31.
The research shows up several things of note including how different interventions in combination can pursue the same objective but, when modelled, reveal different levels of value for money.
Also, the report illustrates how in this Union of unequals, UK government policy interventions work, perversely, against the socially progressive objectives of Scotland’s government and parliament in terms of addressing poverty. And the FAI’s modelling reveals how when income tax payers in Scotland contribute to poverty reduction here, the UK exchequer – i.e. the same government whose policies lead to an increase in child poverty – will gain a financial benefit!
Scope of the FAI study
The FAI has considered potential Scottish Government interventions in childcare, employability programmes and social security. It states: ‘By analysing variations of these types of policies, and different combinations, this analysis illustrates the scale of the impact on poverty and the associated costs and benefits of different options’.
The researchers modelled three scenarios or intervention packages configured to achieve the targeted reduction in child poverty from the present level, namely an overall reduction of 15% to achieve the 10% rate by 2030. Giving full details of these packages is beyond the scope of this post. In brief, in the FAI’s terminology the packages are:
1) ‘economy max package’ – uses policies that maximise employment outcomes and minimises distortion to work incentives by using Child Benefit as the social security vehicle.
2) ’cost-effective package’ – focuses on maximising impact for the lowest fiscal cost and has a more targeted approach using the Scottish Child Payment and a lower level of childcare support
3) ‘lived experience package’ – is a mixture of the first two scenarios with some additional policies such as an increased income disregard in the Council Tax Reduction scheme.
The table below, reproduced from the FAI report, summarises the modelling results:
Note that by far the greatest reduction in child poverty is found to be achieved by changes to social security: work-related policy interventions appear much less cost-effective than social security ones across all three packages. The kinds of work-related interventions addressed by the FAI are within the powers of the Scottish Government to deliver. By contrast, the overall scope of social security (‘welfare’) powers available to the Scottish Government and Parliament are not only limited under the present devolved settlement but ‘welfare’ powers that are reserved to Westminster (e.g. Universal Credit) are being deployed by the Tories in ways that run counter to the objective of the Scottish Government to reduce child poverty.
This means that in pursuing poverty reduction objectives with its limited social security powers, the Scottish Government – and we as income tax payers in Scotland – are also having to mitigate (in other words, having to spend in order to help undo) the opposing, negative effects of Westminster’s actions. This perverse situation is expanded upon later.
Financing the policy – spending and saving
Whilst the total net costs of the policies range from £4.2 billion to £5.6 billion, from the modelling it is reported that the total net costs just to the Scottish Government – i.e. the funding that would need to be found from within the SG’s own budget – is higher under every scenario, ranging in total between £4.3 billion and £6.8 billion.
Moreover, under each scenario, spending by the Scottish Government to reduce child poverty is estimated by the FAI to deliver a saving for the UK exchequer of between £0.1 billion and £1.2 billion.
The FAI report has this conclusion: ‘There are positive fiscal benefits from increased earnings that outweigh some of the costs of providing the policies through income tax, notably increased National Insurance Contributions and reduced benefit payments.’
The ‘through income tax’ being referred to here is tax on incomes levied by the Scottish Government on residents of Scotland. The FAI further reinforces the point:
’As well as costs, there are savings associated with the labour market policies due to increased income tax receipts, National Insurance Contributions (NICs) and reductions in benefit expenditure, but only some of these are under devolved competence.’
It adds: ‘However, due to the devolution settlement, not all of these (i.e. these savings) will accrue to the Scottish Government. In fact, the UK Government is a net beneficiary of these packages in fiscal terms. Some of this income may flow back to the Scottish Government via the Barnett Formula, but decisions on this are outwith the control of Scottish Ministers.’
Candidly, the reference in last sentence to ‘flow back’ seems somewhat disingenuous. Unless of course someone can show when a Westminster government has ever directly compensated a Scottish Government for a spending decision the latter has taken to advance a distinctive (or any) policy in Scotland, even if it benefits financially the UK exchequer? To the best of my knowledge this is NOT how the Barnett Formula works either in principle or practice.
Westminster acting to increase child poverty
But it’s even worse. The FAI refers to the ‘two-child limit’ and the ‘benefit cap’ describing them as: ‘.. UK Government policies that are expected to increase rates of child poverty in future years.’
It acknowledges that experience of poverty has also intensified since the COVID 19 pandemic. ‘Pressures included the loss of income due to the withdrawal of the Universal Credit Uplift .…’ Although not stated explicitly in the FAI report, this withdrawal is of course another example of a Westminster government policy working counter to child poverty reduction.
The FAI’s three modelled scenarios ‘are additional to a baseline which incorporates all announced social security policies from both the UK and Scottish governments, including the £20 Scottish Child Payment and UK Government policies such as the two-child limit.’ It notes that without the Scottish Child Payment there would be much greater increases in child poverty to come. The FAI might have added that without these several Westminster government decisions, child poverty in Scotland – and also across the UK – could be reducing more and more quickly.
According to the Scottish Parliament Information Centre (SPICe) in 2021 commenting on Universal Credit and Tax Credit uplifts: ‘without the uplifts, both the overall poverty rate and the child poverty rate in Scotland would be around one percentage point higher in 2021-22. Withdrawing the uplift would move around 50,000 people, including 10,000 children, into relative poverty and would decrease spending on Universal Credit and Tax Credits in Scotland by nearly £230 million.’ So the negative impact on child poverty of withdrawing the ‘uplifts’ is confirmed by SPICe: moreover, the withdrawal is accompanied by yet more savings for the UK exchequer! Of course these once again are savings derived from Tory policies imposed on Scotland: they are policies that run counter to interventions to reduce poverty by the government that we in Scotland by majority voted for!
On 29 November 2021 the Scottish Government announced that the Scottish Child Payment (SCP) will be doubled to £20 per week per child from April 2022. The removal of the £20 Universal Credit uplift by the Westminster government will put many families for whom the SCP was, rightly, devised back to square one!
‘… a little more complex’
Finally from the FAI report, we find this comment: ‘The devolution settlement makes this analysis a little more complex than would be the case if the modelling was at UK level’.
Presumably it would be less complex if the modelling could be done at the level of an independent Scotland. And more significantly, without having to mitigate, to counter, the actions of a Westminster government working to a very different political agenda, it would be much less ‘complex’ to achieve the core policy objective!