Social Security Committee

Meeting date: Thursday, October 10, 2019

Official Report 594KB pdf

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Social Security Assistance: Annual Uprating

Agenda item 2 is on the annual uprating of devolved social security assistance. The committee will take evidence from Shirley-Anne Somerville, the Cabinet Secretary for Social Security and Older People. Accompanying her are Veronica Smith, policy officer and Vana Anastasiadou, economic adviser in the social security policy analysis team. They are both from the Scottish Government. I apologise whole-heartedly for stumbling over your name, Vana. I should not have read it for the first time in my brief; my apologies. Welcome to all three of our witnesses. I believe that the cabinet secretary has an opening statement.

Thank you. Good morning, convener and committee. It is a pleasure to be here to talk about the uprating policy paper and the analytical report that has been produced. As you know, we debated uprating the carers allowance and the carers allowance supplement in February this year. At that time, I gave a commitment that I would consider a process that would allow the committee to engage on the policy for uprating prior to the laying of the uprating regulations in January 2020. That commitment was extended to the Scottish Commission on Social Security. We also gave assurances that alternative methods of uprating would be kept under review.

The report before you provides an in-depth analysis of the measures that are available to the Scottish Government for uprating devolved social security assistance and also looks at emerging inflation measures.

The purpose of uprating is to ensure that the assistance that individuals receive maintains its value over the time when prices are changing. For that purpose to be fulfilled, the most accurate measure requires to be chosen. The evidence presented in the report makes it clear that the retail price index as an uprating measure remains a flawed measure, and we should all be able to agree, I hope, that we want to use the most accurate measure of price inflation.

In the response to the House of Lords’ report, “Measuring Inflation”—which I recently sent to you—Sir David Norgrove, chair of the UK Statistics Authority, confirmed that both the UK Statistics Authority and the Office for National Statistics are clear that RPI is not a good measure of inflation.

The Chancellor has agreed with the UK Statistics Authority’s proposal to align RPI’s methodology with the consumer price index including owner-occupiers’ housing costs, or CPIH. Over time, CPIH would become the single measure of price inflation. However, any changes are unlikely to take place before 2025, and following a consultation.

That brings us to our proposed approach to the uprating for 2020-21. The CPI has a methodology that meets international standards and is the measure used by the Bank of England for its target level of inflation. I am of the view that CPI remains the most appropriate measure for uprating for the next few years. I am pleased that the Scottish Commission on Social Security shares that view.

As we move toward 1 April 2020, when we take full responsibility for all of the devolved disability and carer benefits, the use of CPI will also support the safe and secure transition of benefits from the Department for Work and Pensions. As you are aware, we will have a phased approach to the introduction of the benefits, with first launch of new claimants and thereafter the transfer of existing claimants. Our top priority will always be that people will continue to get the regular payments they are entitled to, on time every time. While there is an agency agreement with the DWP to administer existing claims, we are committed to annually uprate the benefit at the same rate as applied by the DWP. Therefore, this year uprating of carers allowance will follow a similar process used in 2019-20, as will carers allowance supplement.

In addition, for the first time, we will also uprate our funeral support payments and young carer grant using powers under the Social Security (Scotland) Act 2018. The funeral support payment was launched on 16 September this year. That payment is an additional investment of £2 million by the Scottish Government, taking overall spending to over £7 million. We have widened eligibility to help more people on that benefit. Unlike the DWP, we will uprate the flat rate elements annually.

The young carer grant, like the carers allowance supplement, is an investment in our carers and the young carer grant is unique to Scotland. Although the payments will start this autumn, we will uprate the payment in April 2020.

We will also future proof the Scottish child payment with a commitment, which will be included in the regulations, to uprate the payment each year.

To ensure that you are able to scrutinise our actions, we will lay a report under section 77 of the 2018 act in the Scottish Parliament annually. The report will set out the effects of price inflation on the benefits that we are delivering and what we intend to do. This year, we will report on the funeral support payment, young carer grant and best start grant.

The section 77 report will be informed by the report that is before the committee and by your response to it, and taking account of the comments from the Scottish Commission on Social Security. The report will be laid in the Scottish Parliament around the time of the budget. We will then provide draft uprating regulations to SCOSS to scrutinise under the super-affirmative process before they are laid in the Scottish Parliament towards the end of January 2020.

I hope that the uprating policy paper and analytical report have assured you that we have looked at all the options available to us for uprating devolved social security assistance and that our proposal of uprating by the September CPI, rounded to the nearest 5 pence, is the best option. I am happy to take questions.

That is very helpful, cabinet secretary, thank you. I have read the Scottish Commission on Social Security’s response to the Scottish Government position. You are quite right that the commission’s recommendation 3 backs the Government’s position that the CPI should be adopted in the short term. However, it does invite the Scottish Government

“to actively monitor comparisons between the CPI, CPIH and RPI and develop future projections.”

I apologise if it was included in your opening statement, but does the Scottish Government intend to do that?

We will remain interested in what is happening by comparing the differences between those measures. We took that forward as part of the process for the analytical report. We set out what the differences between the measures were and what those differences would mean.

As part of our on-going work, we actively monitor the comparisons between the different inflation measures, while developing future projections. We will also keep a very close eye on the new measures that are being looked at that do not fulfil the requirements to be used as an inflationary measure at this point, but may be of use in the future.

We do not consider RPI to be a viable measure. Until it is reformed, that will not change, but the figures will be available to see what the difference could be using the different measures, and that is certainly something that can be made available in the future, as we have done in the analytical report that is before the committee.

That is helpful. I was checking that that is an on-going analysis, rather than a one-off body of work.

You mentioned 2025 as a potential date for moving to another inflationary uplift model and mentioned CPIH as a possibility. Recommendation 5 from the Scottish Commission on Social Security asked for more clarity on

“using CPI for the foreseeable future”,

what that means and what the timescales on that would be. Perhaps that is 2025. Could you confirm that?

The commission also asks what triggers would prompt a review regarding changing the measure earlier than that. If something else was to happen in the data that you are actively monitoring and things were to shift, what triggers would you be looking at? Clarity on those two points would be quite helpful.

When a measure becomes an official national statistic obviously sits outwith the power of the Scottish Government, so we will watch with interest what is happening at that level.

The easiest way to describe it is to say that a material change would require us to look at the circumstances. I mentioned RPI, for example, and the timeframe that is being talked about by the United Kingdom Government for when changes might be made, following consultation. That is one example of when our approach might require another look.

As I mentioned earlier, there is obviously the development of household and region specific measures, which are very interesting and could be useful in the future, but they are very much a work in progress at this point. It will take a considerable amount of time—I would suggest way beyond 2025—for them to become national statistics.

In summary, convener, it is about when there is a material change in circumstances that would change the underlying assumptions that we have made in this analytical report about what stands the test of a good measure of inflation.

Apologies, cabinet secretary, but folk will be wondering what a “material change” would consist of. Could you give an example of what a material change might look like?

A material change would be if RPI was looked at in the future, a consultation took place, changes were made to the way RPI was measured and it again became a national statistic—a verifiable and trusted measure of inflation.

Alternatively, a material change would be if the household and region specific measures that are being looked at by the ONS become national statistics. Those material changes to what the ONS, for example, would classify as a robust measure of inflation would be the types of changes that we would look at.

One of the key objectives of the new social security system was that it would be designed with the people of Scotland on the basis of evidence, and that includes the uprating methods. What consultation has taken place with experience panels or those with a lived experience of the changes to uprating methods that George Osborne introduced in 2010?

When we look at uprating, it is important that we look at what is an internationally regarded national statistic and a good measure of inflation. I appreciate that people will have different views on how they would like benefits to be uprated, and I respect that. Over a number of months, and particularly since we had the previous debate on this issue, I have spoken to stakeholders who have different opinions on uprating, as I am sure that Mark Griffin has. We cannot use a measure that is not regarded as a bona fide measure of inflation.

Over the past few months and years, I have had a number of discussions with stakeholders and I appreciate that they have different views. I utterly respect that other people will have different opinions on this, but even if those are strongly held opinions, I cannot use them as the basis for using something that, for example, the ONS does not determine to be a good measure of inflation. People will have opinions on it for their own reasons, but I have to use the evidence of, for example, the ONS and take into account the views of experts and statisticians about what is a good measure of inflation.

09:15  

I appreciate what you are saying and that you have spoken to stakeholders, but I wanted to clarify whether the experience panels have had any involvement on which method of uprating should be used.

I am not aware of experience panels being involved. I have certainly had discussions with stakeholders.

It has been purely stakeholders—okay.

I know that there is a range of opinions on what measure of inflation should be used; we have had debates here and in the chamber on that. Has the Government looked at any methods of uprating beyond inflation? There is no restriction in the 2018 act to simply use inflation. Ireland, for example, has uprated payments by €5 per week. Denmark uses wages to inform uprating, Norway uses a combination of measures, and the Netherlands uprates twice a year, using a measure that is linked to the minimum wage. The Reform think tank has proposed a new index altogether. What work has gone on in Government to look at uprating methods beyond inflation?

I would differ from your conclusion that there is a range of views on what a good measure is. When you look at what the ONS, the House of Lords and a number of different studies have said recently, you see that there is uniform acceptance that RPI is not a good measure of inflation. When we are looking at the expert advice that is coming in, I do not see a range of views about what is the best measure of inflation.

I am not talking about inflation. I have not mentioned inflation at all. I am talking about methods of uprating beyond inflation.

With respect, I thought the beginning of your question was on the different views around inflation.

I will deal with the different aspects that you mentioned later in your question. The Social Security (Scotland) Act 2018 says specifically that we must consider inflation and changes in prices. The 2018 act states that we have to report on that. I was not involved in the details of the Social Security (Scotland) Bill when it was going through Parliament and therefore cannot comment on why it was drafted in that way and what may have been discussed in committee during its passage, but the 2018 act specifically requires the Government to look at price changes.

You are quite right to say that there are other areas that Government could look at. I would separate out what we are required to do in the 2018 act on uprating, which is around price inflation. That is what the analytical report details and that is what we have gone into today.

If there are calls for the Government to do more than what it is required to in the 2018 act, I would suggest that that is looked at as part of our annual budget process. If parties are looking for us to do more than increase payments by price inflation, that would form the part of our annual budget process, where such calls are made either by the committee or in discussions between political parties and the finance secretary. We are moving rapidly into that time of year. If there are suggestions that the Government could or should be doing more on those aspects, of course parties should be encouraged to have those discussions either with myself or the finance secretary.

I take on board what you are saying, but section 78 of the 2018 act does not limit the Government to use inflation. Section 78 specifically says that the Government should uprate by “at least” the inflation measures, which you set out in your analytical report. I was simply asking whether the Government had done any exploratory work on whether there are any international comparators that you could look at favourably.

Finally, I would like to ask about the situation that we may have in this Parliament, where wages are increasing at a faster rate than inflation. We could potentially be in the position where this Parliament decides to increase MSP’s wages at a greater rate than the increase in assistance to carers or disabled people. What is your view on the reputational risk to this place of MSPs’ salaries increasing at a greater rate than assistance that we will provide through Social Security Scotland?

I am not responsible for the setting of MSPs’ salaries. I reiterate that if a political party wants the Government to do more than it suggests to do in its budget, the responsibility would be on that party to put forward a measured, detailed and costed response about what it would like to see and, importantly, what would be cut to allow the budget to balance that.

We have to move on, but the opportunity to discuss that further will arrive in about 20 minutes’ time, as the cabinet secretary is sticking around for some pre-budget scrutiny questions under the next agenda item.

How much does the risk of policy overspill affect your decision making when you are looking at uprating? How closely are you working with the UK Government and the ONS in terms of ensuring that we make the right decisions about uprating, so that we are not at fiscal risk if we diverge?

I would argue that the issue of overspill is separate to what we are looking at at this point, which is the Government’s requirement, under the 2018 act, to uprate by the best measure of price inflation. We have set out in the analytical paper our proposed best method of measuring inflation and the details of how we would implement its use.

I am not aware of any spillover issues that we need to be cognisant of with regard to uprating. If there is a divergence between the uprating measures of the Scottish Government and the UK Government, we will of course investigate that, but in my opening statement I highlighted that where we have agency agreements with the DWP, we are required to use the same uprating measure. The DWP uses CPI, and our analytical report concluded that CPI is the best measure of inflation as far as we are concerned, so those two things fit nicely together.

My second question is on working with the UK Government on the choices around uprating. Obviously, both Governments are looking at the future, and there is some talk about moving to CPIH or revisiting RPI, which a lot of people believe was taken off the menu because it was skewed by the impact of clothing costs. As the UK Government looks at the best options for uprating, it might make changes, so timing could be key here. How closely are you working together? If Scotland diverges on what it thinks is best, it could have a financial impact for us.

It certainly could if we used different methods for uprating. I refer back to the earlier answer that I gave on timeframes. Any changes seem quite far away. There are on-going discussions between the UK and Scottish Governments about how we are moving forward on those aspects, and they will continue. I do not foresee any changes in the short term to what the UK Government is doing, and therefore there is no requirement for us to look at that in more detail than we are at the moment. If the discussions at an official level start to flag those things up in future years, we would have to take that into consideration and see whether there would be a financial spillover implication for the block grant adjustment.

You mentioned the way that you make allowances for price inflation. When it comes to the social security forecasting process and thinking into the future, do you have to plan for or make predictions about things other than price inflation?

It is important for me to separate out the distinct areas that we are responsible for. As I said earlier, we have a responsibility and an obligation to carry out uprating and to do so using price inflation.

When we are looking at benefits over a number of areas, we are of course very aware that there are other ways of measuring. I know that there are studies of statistics that look at the cost of funerals, for example, but those are not official statistics. There are areas that could be looked at, but the challenge is that they would not sit comfortably with the Government when it is considering how benefits could be uprated.

In effect, those are studies, forecasts and analyses done by private companies. They are useful and of course we take cognisance of them in the widest sense—for example, when we consider funeral poverty—but they are not something that I would look to use for uprating. I go back to the fact that we have to use a statistically robust measure of price inflation, but we look at those studies for policy development in the round.

I want to pick up on the point that was made about spillover—and I appreciate that you might feel that some of this is spilling over into other areas of policy. The fiscal framework outlines conventions around spillover and the principle that there should be no detriment to either the UK or Scotland as a result of Scottish Government or UK Government actions. When you are looking ahead, predicting and making plans around social security, are you satisfied that that principle is being applied and that you will not be subject to detriment at any point?

It is not something that either Government has made a claim on up to this point. However, my officials are very cognisant of that as we make our decisions, whether on uprating or anything else. We have to look very carefully at what is in the fiscal framework on spillovers. We might get into more detail on this in the session on the budget later in the meeting. When we look at all the areas of social security decision making, I have to bear in mind that the vast majority of decisions will come with a price tag and a requirement for that money to be found. If the policy decision differs from what is happening in the UK Government’s policies, there will be a requirement for that money to be found within the Scottish block grant. Whether we are looking at uprating or anything else, we have to be cognisant of the fiscal framework. The challenge of spillover—and a call that would be made by the UK Government—weighs heavily when we are looking at the policy changes that we could make.

I have one quick question, which probably shows my ignorance rather than anything else. We have the three types of uprating but, from what I can read in our papers, we do not actually have how much each would cost. It is possible that I might have missed that, but can you provide us with the actual figures on what using the CPI, CPIH and RPI would look like, so that we can make that comparison?

Some of that information is in the analytical report, although it probably does not go as far as you might like. We have certainly modelled those figures in our work on the report, so if it is not in the documentation that has been made available to you, we can furnish the committee with that in writing in due course. We absolutely do monitor what the differences would be. If that is not in the information that the committee has, we can supply that.

I am obliged. Thank you.

On RPI, I do not see why anybody would be proposing to use a measure that is, if not discredited, certainly not accurate and is not an official ONS measure. The only reason for that that I can think of would be posturing.

It seems entirely legitimate for somebody to say they want to see a more generous uprating. Given that we have heard that that should be evidence led, is the cabinet secretary aware of any worked-out, evidence-based proposal that any party in the Parliament has brought to the budget process?

09:30  

We have not had any suggestions on that in budget discussions in previous years. The issue came more to light after the budget deliberations concluded last year. As I said earlier, we are going into the next budget round. If there is a requirement or a feeling that the Government should be doing more than we are, that opportunity will arise in the budget process. Nothing on this area was delivered to the finance secretary in the budget discussions last year.

If CPIH is a measure that includes owner-occupier housing costs, that seems both flawed and likely to penalise those parts of the UK that have lower levels of owner occupation. We have seen low interest rates, not least because of the financial crash, that have had a beneficial impact on owner-occupier costs while there have been higher increases in the private rented sector and other sectors.

The UK Government is going to use CPIH, but would it not be better for Scotland to think about not doing that, given that owner occupation is lower in Scotland than it is in most parts of the UK and therefore using CPIH would have a disproportionate effect in Scotland?

We are looking at that very important area. One aspect is whether something is a good measure of inflation—as you rightly pointed out, RPI is widely recognised as being a flawed measure of inflation. There are further discussions at the UK Government level around using CPIH. You are right to say that CPIH includes owner-occupier housing costs. CPI and CPIH are broadly similar, but CPIH includes owner-occupier costs.

It is something that we will look at in the future. We would want to ensure that CPIH had established a reliable track record as a national statistic before we even considered using it for uprating. Once it had reached that level, there would need to be a sense check on whether it would be a good measure of inflation, given the demographic in Scotland that we are considering when it comes to social security, and whether a measure that included owner-occupier costs passed the test.

Those are the kind of areas that we will look at in the future. We are not really at the stage of that sense check yet, because CPIH does not have a track record as a national statistic. You are quite right to point out that we should take cognisance of what it measures and whether it would be right for the demographic that we are dealing with regarding social security. That is something that we will need to look at in the future, once there is a material change and CPIH passes that first test.

My apologies for missing the beginning of your evidence this morning, cabinet secretary.

How much attention has been paid to the generally higher inflation experienced by lower-income households in many situations? Has that been taken into account when making the decisions on uprating?

That is an important area that we look at. The Government needs to use a robust measure of inflation for uprating, which is why CPI has been used. There is obviously a challenge in using that, as lower-income households experience higher inflation. In the analytical report, we have explored in detail alternative measures for uprating that could be used in the future. That report tried to tease out that different household types experience inflation differently, exactly as you point out.

One area that the ONS is looking at is household cost indices, which is an experimental measure that looks at various household groups, but that is not yet robust enough for us to consider using it for uprating, and that is why we go back to CPI in the analytical report. However, we have looked at the other measures and we will keep them under review to see whether any of them become national statistics in the future. The challenge is to find a national statistic that is a robust measure of the higher rate of inflation experienced by lower-income households that we could use to determine uprating.

I appreciate that this is a complex area, but you will appreciate that when it appears that a group of low-income people, who might be particularly vulnerable, are being offered an increase that is not all that it might be, people will be rightly concerned and are going to want to debate and understand why that has happened. I note that when people are paying back their student loans to the Students Awards Agency for Scotland, the interest is in line with RPI. That is an instance of people paying money back at that higher rate, but when money is being paid out, it is at the lower rate. How much of a holistic overview is there?

My understanding is that the Scottish Government does not decide whether RPI or CPI is used for student loans. There are a few legacy areas where RPI is still used, and that is one example. Other areas use RPI under contract. As I said, I am not aware that it is within the Scottish Government’s gift to change the arrangements in the example that you gave.

I take your point that it looks unfair if that is the rate that is being taken off people, but we are talking about the money that is being given out. The challenge is that if people think that we should not be using CPI because it does not reflect what is happening to people, what should we use? We have looked at all the other measures that are national statistics and there is not one that we could use instead of CPI. I appreciate that people might not feel that CPI fully covers every aspect, particularly for certain demographics, but there is not a robust alternative that we could move into its place at this point.

There are no other questions. The cabinet secretary is sticking around for us, but I thank her for her evidence and her officials for their support in this session. That ends agenda item 2. We will suspend briefly before we move to item 3.

09:39 Meeting suspended.  

09:43 On resuming—