Scottish welfare after independence

As many of you will be aware, on Thursday, 18 September 2014, the Scottish people will be invited to vote in a referendum to decide ‘Should Scotland be an independent country? Yes/No’. In order to be prepared for such a momentous event, the Scottish Government has set up an Expert Working Group on Welfare, comprising five members with backgrounds in different areas of social policy. Mike Brewer is Professor of Economics in the Institute for Social and Economic Research at the University of Essex, and also a Research Fellow at the Institute for Fiscal Studies. Martyn Evans, now Chief Executive of the Carnegie Trust, has experience from the Scottish Consumer Council, CAB Scotland and Shelter. Douglas Griffin has been Director of Finance in different NHS Trusts. Darra Singh OBE has worked for both Housing Associations and for the DWP. Lynn Williams works for SCVO, and recently has become a member of the Scottish Government’s Carers’ Reference Council.

The Group’s remit is to

  • review and provide assurance on work undertaken by the Scottish Government on:
  • the cost of benefit payments in an independent Scotland upon independence
  • the delivery of those payments in an independent Scotland.

The Group will also offer views on immediate priorities for change.

Organisations and individuals were invited to submit evidence between 8 February and 8 March 2013. Being a Scot based in Edinburgh, I made a personal submission to the Working Group making the following points.

The ‘Call for Evidence’ paper of the Expert Working Group on Welfare is heavily geared towards asking questions about how the current UK Social Security system (including the change to Universal Credit) can be transferred to Scotland after Independence, particularly with reference to the costs, and to its delivery of the benefits.

The current UK Social Security system, comprising a contributory National Insurance scheme and means-tested safety-net (Social Assistance), is neither fair nor efficient, and is an expensive method of keeping poor people still in poverty. It is not just the below-poverty levels of benefit that prevent the benefit system from delivering security, but also its complex and opaque structure. Together with the UK’s personal income tax system, it has helped to transfer income and wealth from the poorest section of society into the pockets of the richest, over the last three or four decades. It is a system that has been tried and failed, and should not be imposed on the Scottish people.

One of the reasons why the Scottish people want Independence is so that they can create a much fairer, more egalitarian society that reflects their values more accurately than can be achieved under the current or future Westminster governments. While adopting the current Social Security system initially may enable a smoother transition from dependence to Independence, it is important for the Scottish people to have a debate about the form of Social Security that would suit them, comparing the merits and costs of the current UK Social Security system compared with those of a Basic Income system.

The Centre for Social Justice’s report, Dynamic Benefits: Towards welfare that works (September 2009), correctly identified the main problems inherent in the current system, and although it recognised that a Basic Income (BI), or Citizen’s Income (CI), scheme would tick all the required boxes, it eschewed this approach in favour of marginal tinkering at the edges of the current system. The result is the Universal Credit, to be introduced between 2013-14 and 2017-18, which will make marginal, rather than radical, changes to the Social Security system, and will introduce an additional layer of complexity to the system. The Westminster Government’s Universal Credit proposals were reviewed in the Citizen’s Income Newsletter, 2011, issue 1, available from the CIT website.

The European Union introduced a new procedure entitled a European Citizens’ Initiative (ECI) in April 2012, which enables groups of citizens from different countries across the EU to register a request or proposal to the European Parliament. If registration is accepted, then the group must obtain signatures from 1 million of the 500 million citizens of the EU within the following year in order for the proposal to be put before the Parliament. Already a group of more than 50 people from 14 countries has gathered regularly, and on the 14th January 2013 they registered an ECI on Unconditional Basic Income (UBI). They call for a UBI that is 1) universal, 2) individual, 3) unconditional and 4) ‘high enough to ensure an existence in dignity and participation in society’.

The introduction of a UBI that is universal, individual, unconditional and high enough, does not by itself define a complete system. Other details have to be added, such as the actual level(s) of the BI, how it is financed, and with what other instruments it should be coupled. A BI scheme can help to fulfil a number of objectives, but by itself it cannot redistribute income from rich to poor. A restructured personal income tax system is required to meet that objective. There is no one optimum Basic Income scheme.

As I show in my paper ‘A rule-of-thumb Basic Income model for the UK’, published in the last edition of the Citizen’s Income Newsletter:

  • a Citizen’s Income (CI) scheme can be designed to meet a set of stated objectives, according to specified priorities.
  • if financed by a hypothecated, restructured, flat-rate or progressive, personal income tax system (replacing both the current UK income tax and employees’ National Insurance contributions systems) in which there were no personal allowances (apart from the CIs), no tax exemptions and no tax loop-holes, then an approximate figure for the income tax rate required to finance the scheme can be calculated;
  • a simple Rule of Thumb can be used for establishing the level of a Partial CI at 0.25 of mean income per head, calculated from the latest available figures, and a further 0.25 of mean income per head to top up the Partial CI to a Full CI, for those whom a compassionate society would not compel to top up via earnings. It is suggested that these include those over pension-entitlement age, those with disabilities, unpaid carers-of-last-resort, and, as now, the responsible parent of a dependent child (aged 0 – 15);
  • current higher rate income tax-payers (2012-13) would lose very little, (5% of net income at most, and the proportion decreases with gross income)
  • that those entitled only to partial CIs could be allocated an initial tax-free tranche of gross income until their net income schedule meets and merges with the Full CI schedule, thus providing a progressive element in the income tax schedule (justifiable on both equity and efficiency grounds)
  • there is a variety of potential levels for the Partial BIs, and of associated income tax rates on the initial tranche of gross income before the Partial and Full CI schedules meet and merge, any one of which could be introduced as an alternative without changing the standard rate of income tax. This offers a remarkable degree of flexibility.
  • even fairly generous BI schemes are economically feasible in the UK.

Although the ideas are illustrated with figures for the UK, the scheme is easily transferable to other similar countries, including an independent Scotland.

With respect to the transition from the current Social Security system to a CI scheme, a sector approach would be feasible: to increase a universal Child Benefit to 0.25 of mean income per head, first, followed by a Full CI for elderly people next (together covering approximately 35% of the population), then to introduce CIs for the working-age members of the population, and make changes to the personal income tax system.

The redistribution aspect of the above scheme, reversing the trend of the last three and a half decades, transferring funds from richer people, who have a larger propensity to save, to poorer ones who will spend a higher proportion of their income, is expected to boost demand. It would also help to regenerate run down local economies, thus building up the national economy as a stable core, so that the Scottish economy would not be so dependent on the vicissitudes of the global economy. Reduced marginal deduction rates would increase incentives to work-for-pay for people on low incomes.

Scotland differs from England in several respects. One is the much smaller size of its population, (5.25 million), most of it concentrated in the Central Belt, leaving vast tracts of land relatively under-populated, with its own attendant problems. One should look to other similar nations, such as the Nordic countries, for clues about how to cope. Another difference is the Scottish demographic profile, resulting from Scotland’s most valuable export, its young and middle-aged educated people. This was reflected in the mid-2010 population figures by a lower proportion of children aged 0-15, and a slightly higher proportion of people aged 65 or over, (although with a slightly lower proportion of people aged 80 or over), compared with figures for the rest of the UK. It is important in the near future to provide financial incentives to enable those Scots who wish to contribute to an independent Scotland to do so.

It is also important that Scotland should provide an education system that has as its first aim that of building the confidence and self esteem of all of its children, also imbuing them with values of integrity and compassion, – caring for their neighbours, – inculcating attitudes of pride in their work and reliability, and teaching them life-skills. These must surely be the groundwork on which future employability, and entrepreneurship, must be based. Another difference is that Scotland has had a tradition of a large proportion of its population living in tenements, or in public housing. Regulating the housing market so that houses become merely homes once again, rather than speculative investments, could make home-ownership accessible to a higher proportion of Scots than at present.

Although an independent Scotland might experience difficulties initially, while adjusting to becoming a free nation again, I have every confidence in its prosperity in the future, with its natural resources of renewable energy and water. However, its people are its greatest assets, and investment in these must be the first priority for the Scottish Government. It is important that a debate, comparing the relative merits and costs of the current UK Social Security system and of an alternative Citizen’s Income system, should take place as soon as possible in Scotland.