Official Report 648KB pdf
Agenda item 2 is continuation of our inquiry into Scotland’s economic future post-2014. We will hear from two panels of witnesses. I welcome our first panel. We are joined by Bill Scott, who is director of policy at Inclusion Scotland; Dr Katherine Trebeck, who is policy and research adviser at Oxfam GB; and Peter Kelly, who is director of the Poverty Alliance. Thank you for joining us.
We are a little short of time this morning and have a lot to get through; we will probably allow this opening item to go on for about 75 minutes. Therefore, I remind members to keep their questions short and to the point. It would be helpful if members could direct questions at particular members of the panel rather than asking them of all three panellists. If panel members would like to respond to a question that has been addressed to someone else, they should catch my eye and I will bring them in, as time allows. If answers could be kept as short and focused as possible, that would be very helpful in allowing us to get through what I am sure will be a broad range of topics in the time available.
As we have had written submissions from some of the panellists, which have been useful in helping us to understand their position, instead of asking for opening statements, I will start with a general framing question, which I will put first to Katherine Trebeck.
In the debate on Scotland’s constitutional future, there has been a great deal of debate about poverty and inequality. One of the claims that we often hear being made is that the United Kingdom is the fourth most unequal country in the world; sometimes the qualification is made that it is the fourth most unequal country in the developed world. John Rentoul, who writes for The Independent—I am sure that the panel will be familiar with his work—has written quite a lot about that. He says that the UK ranks 28th out of the 34 Organisation for Economic Co-operation and Development countries on income inequality, but 14th out of 34 on wealth inequality. Over the past decade, income inequality has been reducing, probably as a result of the recession.
I would be interested to get your take on that. Do you think that it is important that when we are having the debate we frame it with accurate information, rather than make fairly wild assumptions?
Absolutely. I think that there are too many myths swirling around on welfare reform and poverty. The false dichotomy between “strivers and skivers” is a case in point. Sometimes, what we hear is blatant propaganda, so it is crucial that we stick to facts.
The point that you make about income inequality versus wealth inequality is crucial. A few weeks ago, Oxfam published a report that identified that five families in the UK own as much wealth as the entire bottom 20 per cent of the population. That shows the dire extremes of wealth inequality. I suspect that many people understand income inequality, but wealth can be hoarded to a much greater extent. It is important that we extend the discussion beyond income inequality to wealth inequality, because wealth opens up different mechanisms for taxation and policy activity.
I suspect that my colleagues will probably have comments to make on that.
I agree with Katherine Trebeck that we must have accurate figures. Some figures will be interpreted in different ways, but we need to start with an accurate assessment of the levels of income inequality and wealth inequality.
I back up the point that Katherine Trebeck has just made; the issue is a fundamental one. Inequality has diminished to some extent over the period of the recession, but the extremes of wealth inequality and income inequality in the UK and Scotland are stark. It is not just the existence but the impact of those inequalities and what they mean for people in Scotland and the rest of the UK that are important.
To pick up on that last point, David Eiser from the University of Stirling, whom I am sure you know, and who will be on the second panel, said in his submission:
“Income inequality in the UK is high relative to international comparators, but this is largely the result of a ‘London-effect’.”
Many extremely wealthy people live in London; it is a world city. He went on to say:
“Inequality in Scotland is roughly average compared to OECD countries”.
Do you think that that is a fair analysis?
There is no doubt that London has a significant distorting effect on the UK and the UK economy, and that it has an impact on inequalities outside London, so that statement is accurate.
Except that “average” is still quite bad when we remember that, over the past 20 or 30 years, inequalities have got worse across the developed world. In the report that we published last year called “Our Economy”, we highlighted the fact that the wealthiest households in Scotland are 273 times richer than those at the bottom. The factor for the UK is 500, but a factor of 273 still suggests a pretty unequal picture. It is true that the position in Scotland might not be as bad as the situation that the UK is in as a result of the London effect, but it is still the case that we are an extremely unequal country. If we add to that the growing health inequalities, this stuff is translating into life-and-death situations.
Do you want to say anything, Mr Scott?
I have very little to add, except to say that, with regard to income inequality, disabled people are even worse off than the average person in the population. They are almost twice as likely to be living in poverty as an adult who is not disabled, and the disparities in Scotland that Katherine Trebeck has referred to expand again for disabled people. In short, the average disabled person is likely to be significantly worse off.
Okay. I will hand over to Dennis Robertson.
Good morning. We are trying to establish the facts here. With regard to inequality, do you see the referendum as an opportunity for change? If so, where do you want that change to take us? What pathway should we be taking in order to redress inequality? As the Oxfam submission points out, we have been looking at this issue since 1975. Inequality exists, and every Government since that time has failed to address it. Does the referendum provide an opportunity for change?
It will not surprise any of you to learn that Oxfam has no official position on the outcome of the referendum—
I am not asking about the outcome—I am asking whether it provides an opportunity for change.
We are in no doubt that we need a radical change in our approach to Scotland’s economy. What is exciting about the referendum is that it has opened up a discussion across Scotland about the sort of country that we want it to be. You are probably aware of our humankind index, which has quite fortuitously fallen into that space and has contributed to the discussion on whether we want this country to continue to have the extremes of inequality that I have mentioned, and whether we want a country where the wealthiest households are 273 times better off than the poorest, where health inequalities are growing, where in-work poverty and the number of zero-hours contracts are on the rise, and where we are seeing the dire rise of food banks. Indeed, there is no greater indictment of the broken nature of our economy and social safety net than the increase in food banks. Regardless of the outcome that one seeks, the debate that the referendum has spawned has been a really important and positive development, and I hope that we will be able to capitalise on that, whatever scenario we find ourselves in on 19 September.
Like a lot of civil society and voluntary organisations, we have for a long time now been having the debate about the kind of economy, social safety net and social security system that we need, and September’s referendum has allowed a conversation that has, unfortunately, sometimes gone on between too few individuals and organisations, to spread out much wider. The Poverty Alliance’s initial contribution to the referendum debate came out in, I think, September 2012, when we published a discussion paper that set out questions for all sides of the referendum debate, and since then we have taken part in many discussions. Indeed, last year, our Scottish assembly for tackling poverty quite heavily featured debates on constitutional change. Like Oxfam, we are not taking a position on the referendum itself, but it has presented an opportunity for discussions like this one to take place and for us to ask what needs to change in Scotland.
Mr Scott, do you see the referendum as an opportunity for change in the world of people with disabilities?
Yes. I think that everyone agrees that the debate surrounding the referendum provides an opportunity to work out the sort of Scotland we want to live in in the future—and perhaps even the sort of Scotland we would like to live in in the present or not so far into the future.
I will not argue with that.
We do not have a position on the referendum, because disabled people’s views on the matter are as diverse as those of non-disabled people and we do not want to divide one from the other on the issue. We want to leave people to make up their own minds.
However, we definitely have an opportunity here. Disabled people have been campaigning for independence longer than the party in government, because they want to live independently in the community and to be part of mainstream society. That goal can be highlighted during the referendum debate to find out how all sides respond to the question, “Are you in favour of disabled people playing a full part in society? If so, what sort of Scotland do we need to achieve that?” Whatever the referendum’s outcome, those questions will remain, but if we are able to discuss them during the course of the referendum, we might find ourselves closer to an answer afterwards.
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What are the current barriers to progressing that change?
There is still the massive barrier of the stigma that surrounds disability, which I think has become worse in recent years because of some of the “strivers versus skivers” rhetoric. A lot of disabled people have—wrongly—been described as not wanting to work when in fact there are many barriers to their being able to work. Not only are there all the physical barriers such as the fact that transport is not yet fully accessible and that many buildings, too, are not accessible, but many employers are not receptive to the idea of disabled people being in the workplace, so the referendum might create opportunities for a discussion with employers about the skills and experience that disabled people can bring to the workplace. Many of them simply do not get the chance to exercise the skills that they have acquired.
Do any of the other witnesses wish to make any points about current barriers with regard to inequality?
If we are talking about barriers to economic change, I think that the way in which the labour market, which Bill Scott has just mentioned, currently functions, the way in which people can or cannot access it or remain in it, and the rewards that they receive for work, form significant barriers to reducing income inequality and addressing poverty. Members will know that, according to recent statistics, in-work poverty has become one of the key causes of overall poverty. How our labour market functions is itself a barrier. That will remain an issue regardless of the outcome of the referendum, and we need to think about the policies that are required to make our labour market work better for those who are currently at the bottom of it.
I want to make just a brief point, because I could be taking us into huge uncharted territory. Another barrier is the extent of the current economic orthodoxy and the push towards economic recovery instead of building back a better economy. It is not good enough to go back to business as usual, because business as usual did not serve us well enough prior to the recession. Oxfam’s mantra in aid situations—for example, after the Philippines typhoon and tsunami—has always been “Build back better”, and we should be applying that to the economy instead of trying to recover the old model that did not serve us well enough before. That model did not reduce poverty to the extent that we needed it to be reduced, and it certainly did not reduce inequality or bring down health inequalities. We need to move away from seeking faster recovery and faster economic growth and instead to think about building back better and creating a better economy that addresses those inequalities head-on.
Thank you. I am sure that we will explore some of those issues in more detail.
Good morning. Peter Kelly mentioned in-work poverty, which, along with other issues, highlights the level of poverty and inequality in our society. Would the living wage assist in addressing that inequality?
Absolutely. The Poverty Alliance was one of the organisations that established the living wage campaign in 2007. We have been strong supporters of it for a long time. We adopted the living wage campaign because people who were living on low incomes and who were in work or out of work kept telling us that things were not working for them and that they could not make ends meet when they were in the labour market.
The work that is being done on the living wage undoubtedly helps individuals to lift themselves out of poverty, but it also sets out a different way for an economy to work. It begins to set a different agenda for the relationship between workers and employers and it points to a different role for employers in our economy—one that is not just about profit or growth but about social responsibility, which is expressed by employers paying the living wage.
We should grasp every opportunity that we can to increase the use of the living wage. I feel that the Procurement Reform (Scotland) Bill provides a good opportunity to do that.
On equalities and what is happening on welfare reform, if there were an independent Scotland, what taxation levels would be required to support a welfare service that reduced poverty and inequalities?
If in-work poverty was reduced, not as much would have to be spent on the welfare bill. That is one of the lessons that people should learn. A living wage reduces the amount that is spent on universal credit or housing benefit, because people get the money in their wage packet rather than from the state.
So the living wage is crucial.
There are a number of measures. Disabled people’s organisations support the living wage because, although only two in five disabled people of working age in Scotland are in work—in comparison with four out of five non-disabled people of working age—those who are in work are often in entry-level jobs that pay the minimum wage. The living wage is an extremely important issue to those organisations.
A high level of taxation might be needed to fund the system. However, collecting uncollected taxes would go a long way towards creating a more supportive welfare system. We should also begin to think about how we spend social care money to support the welfare system. Does disabled people’s life and limb cover enable them to participate in the labour market? I do not think so. It does not necessarily allow them to attend college. It does not allow them to volunteer and acquire skills and experience that they can take into the labour market in order to compete with non-disabled people.
We should think about a welfare system that is more than a safety net and which supports people to fulfil their potential. If it did that, less would be spent on healthcare, because people who have a good sense of wellbeing and feel that their lives are worth while tend to use the health service less. That fact is demonstrated in every study of health inequalities.
I am not a tax expert, but I suppose that a higher-tax regime would be needed. However, there are ways to reduce the overall health and welfare budget through investing in people rather than just having a safety net to catch people when they fall out of or are prevented from entering the labour market.
Whether or not we are in an independent Scotland, we need to think creatively about what sort of society we want. If we want people to participate and to have feelings of self-worth, we have to allow them to take on the roles and responsibilities that they want to take on but are currently prevented from doing because the state does not support such activity.
If someone who is unemployed does too much voluntary work, they are told that they are not fulfilling their job-seeking conditions. I have worked in the voluntary sector for 25 years, and colleagues whom I started with and who were volunteers are now directors of voluntary organisations. Voluntary work is a tremendous route into employment, yet we are not supporting people to do it. We need to rethink what we are about so that we can give people the support that they need to succeed and to enable our society to succeed.
I will build on Bill Scott’s point. The issue is not so much the outright levels of taxation, although we should certainly collect all the taxes that are due and introduce things such as the Robin Hood tax to undermine speculation and raise tons of money for welfare here and to support people around the world. That should go without saying, but the discussion goes beyond outright levels of taxation.
Unfortunately, I do not carry many statistics around in my head, but one of the few statistics that sticks in my head is from the Christie commission—it is that 40 per cent of local government spending is due to what it called failure demand. It is remedial spending because, due to inequality, we have failed to fix people’s lives in the first place.
If we track through to a logical conclusion the idea of creating a healthy society and an economy that we can build back better, and if we create an economy that supports people in the first place, we could have lower levels of tax, because we would keep people healthy in communities, so we would not need to expend lots of money in accident and emergency departments, the court system and so on. I urge the committee to broaden the discussion to what sort of economy we require to help people to live good, healthy and fulfilling lives, so that they do not require failure-demand spending at the end stage. That spending is always more expensive, because it involves judges and highly paid consultants in hospitals and so on rather than the perhaps less glamorous work of community health workers and so on.
I will direct my questions to Mr Scott and then to Dr Trebeck. To date, the economic arguments for and against independence have mainly focused on the prosperity of the nation as a whole. Do we still have an opportunity to influence undecided people by looking at more specific aims?
Mr Scott’s submission suggests that inequalities can
“increase whilst overall improvement occurs”.
Your submission gives the example that we can
“‘increase the proportion of young people in learning, training or work’”,
but that might have no impact whatever—or perhaps even a negative impact—on young people with disabilities.
Your submission also refers to care charging. I was fairly astonished to read that
“although millionaires are only required to pay tax at 45p in the pound the marginal tax rate imposed on disabled people by this ‘Care Tax’ can exceed 90% of their income”.
Do you think that, if more attention was given to those issues and more awareness was raised as part of the debate, we might see—who knows?—some change in the polls?
I honestly do. It is a great unknown that care charges have grown over the years and are increasing at a faster rate than inflation. I know disabled people who pay out in charges more than 90 per cent of the income that comes into their house. People who medically retired from work in their 50s and have a significant pension can find that it is practically all taken back by their local authority in charges.
We do not have a debate in society about that level of taxation—such charges are taxation to a disabled person. A disabled person pays their normal income tax, council tax and so on, and an additional charge is placed on them for their daily care needs. If that person went into hospital, we would think it an obscenity if they were charged for their daily care needs in that way.
09:45I see the referendum as an opportunity to debate why disabled people are placed in that position in our society, how much it would cost to change that and how we could operate more effectively. Care charges do not raise a lot of revenue in comparison with local authorities’ total care budgets, but they are seen as a way of generating at least some revenue when other options are closed—as they are at the moment, because council tax is frozen.
We could get into a debate about what forms of local taxation might be less regressive and might provide services that we really need. One problem is that the council tax freeze can be regressive, because lower-income people rely on council services more. On the other hand, if the council tax is raised, that will be a barrier to people going into employment because, as soon as they step into employment, they will be asked to pay more.
We have to look at how we can come around to a form of local taxation that is less regressive and does not penalise people who are on low incomes as much. The current ratchet effect for the council tax means that, if it is raised at all, people who are on low incomes pay significantly more as a proportion of their incomes than do those who are on higher incomes.
Mr Scott, your submission says that
“the UK welfare system is geared to one outcome, placement in the labour market.”
Dr Trebeck’s submission picks up on the fact that
“Work is no longer a guaranteed route out of poverty.”
Her submission points out that 700,000 people are in poverty in Scotland, and 280,000 of them are working.
Are you surprised that the issue is not receiving more attention as part of the debate? My colleague Margaret McDougall mentioned the living wage. Surely that should have a much higher profile, because it could be transformational in terms of taxes collected and in lifting people out of poverty. Why has the debate focused on several issues fairly narrowly to this point?
I do not have strong views about interpreting why the debate has gone in one particular direction. To answer your question about whether I am surprised, I am devastated that the debate has not talked more about the quality of work.
Several years ago, I had a conversation with your colleagues on the equivalent committee then about how we measure employment and unemployment. The message from the humankind index is that we need to dig beneath the fairly bland figures to look at the quality of the jobs that are being created. It is not good enough to say that more people are in work if they are working on zero-hours contracts or if their jobs are insecure.
We know from conversations that we had around the country when we were talking about the humankind index that people do not necessarily want loads and loads of money. They want sufficiency and security of income and a suitable job that is very different from the precarious work that is emerging at the moment. We need to have a much richer and more nuanced conversation about the type of work and perhaps to turn our attention to creating a measure of decent work. Perhaps there is a conversation to be had about what such decent work would entail.
Around the office, I constantly use the phrase “the tyranny of averages”. If we are looking only at the mean levels of per capita gross domestic product and the prosperity of the nation as a whole, we will not dig beneath that to see who is being left behind, what conversations we need to have, what policy prescriptions we need to put in place, what changes we need to ask of business behaviour and so on.
I guess that we are going back to the original question that opened today’s meeting, which was about the evidence that we need. We need to dig below the headlines. The issue is not just about bland employment figures and GDP per capita; ultimately, it is about what sort of country we want.
I know that members are all familiar with the humankind index. While the index tracked up very slowly at a national level, when we compared deprived communities with Scotland as a whole, there were gaps in a range of aspects of people’s lives. That is what politics is about. It is messy and hard work, but it is about delving deeper and having the conversation. That goes back to the original question about finding the appropriate facts and not just settling for bland headline figures or being misled by averages.
I have a supplementary to Alison Johnstone’s questions. She referred to care charges for people with disabilities, which Mr Scott highlighted in the Inclusion Scotland submission. That issue relates to local government funding and taxation. As part of the referendum campaign, we could debate our approach to the funding of key local services that are already within this Parliament’s bailiwick. However, should we not be debating that anyway, whatever the context?
I cannot disagree with that. The Parliament has powers that could address some of those issues. Unfortunately, there are other issues—such as the interaction of various welfare benefits with earned income and so on—that are outwith the Parliament’s powers. It would be difficult for the Parliament to address some of the barriers at the moment.
What about care charges and local authority taxation?
They definitely could be addressed.
For three days last week I was in London and the Thames valley. I echo Dr Trebeck’s comment that nothing has changed. House prices in London rose by 70 per cent in 18 months, and always in particular areas. There are pockets of poverty in London. However, it appears that nothing has changed.
We talked earlier about the fact that the UK ranks 28th out of 34 nations in the OECD on the measure of overall inequality. Does the panel believe that inequality has been properly addressed by Westminster Governments? If there is a no vote, will it be addressed in future?
On the question whether Westminster Governments have addressed inequality effectively before now, the answer is no. You also asked whether the Westminster Government would address it if there was a no vote in September. I remind members that the Poverty Alliance does not have a position on the referendum. However, I would say that there would be nothing to prevent the Westminster Government from addressing inequality post a no vote. These things can be addressed. The Poverty Alliance has been around for more than 20 years—prior to the establishment of the Scottish Parliament—and we have always argued that we need to do more to tackle inequality. That is not a new argument for us. Wherever powers sit in future, we will argue that choices need to be made to address inequality effectively.
My answer to the first question is no, too. Inequality has certainly not been sufficiently addressed by the current configuration, whichever party has been in power in Westminster, here and at local authority level, because they all have a role to play. The received wisdom seems to be that in the early part of this century, inequality was held back slightly because of policy changes, which shows that policy does work and is important. However, some of those policies are now being eroded.
The target in the national performance framework—I also keep a copy of that on my desk—to reduce income inequality is an example of what changes could be made. From memory, and I am a little bit rusty because I have changed jobs since I last paid deep attention to the issue, that largely focuses on the bottom end of the income spectrum. We urge that that focus be changed in order to cast the gaze across the whole income spectrum.
The communities that we work with are constantly saying to us that poverty is about wealth and riches, and that it is not just about people at the bottom of the income spectrum but about people across the whole of society. In our written evidence, we have suggested that, for example, a maximum wage or earnings ratio should sit alongside the work that the living wage would do to raise people up from the bottom. The living wage is life changing and vital, but it is only the first step and we need to go beyond that.
Neither we nor Westminster has done enough to tackle inequality in Scotland. I was originally trained in statistics, as anyone who reads my submissions would be able to tell. We sometimes face, to steal Katherine Trebeck’s phrase, “the tyranny of averages.” When we see an improving trend we think that we have tackled the problem. For example, life expectancy has risen for the past two decades, but we have also had rising health inequalities. People do not understand how that can be possible. The fact is that that happens because the life expectancy of those at the top is improving faster than that of those at the bottom. The same applies to employment.
The Scottish Government has a lot to be proud of by keeping unemployment rates relatively low in Scotland compared with the levels in other parts of the UK. Unfortunately, at the same time as relatively high employment levels have been maintained in Scotland, the rate of disabled people’s employment has fallen. That fact is missed in the average figures. We are worried that, even in the economy that is being created, there seems to be less place for disabled people in the workplace. We need to examine why that is occurring. Is the move to more digital forms of service economy acting as more of a barrier than before? Is the loss of places such as Remploy being felt? The idea is that we move people out of such organisations into mainstream employment, but are they moving into mainstream employment? In other words, we need to dig deeper than the headline figures on, for example, how many people are in work if we are to understand and tackle inequality.
I agree. Unfortunately, we do not have the time to drill down and look at some of the issues that I want to talk about, such as quotas and the involvement of young people.
You clearly agree that we are where we are because those who controlled the funding and the policy have failed. In Oxfam’s response to the UK budget, Dr Trebeck says that the welfare cap is
“hardly something to be applauded.”
and that the chancellor’s
“commitment to helping the poorest in the UK is questionable.”
All the main Westminster parties are agreed that there should be a welfare cap. If we were to assume a no vote, what would be the long-term impact of the UK Government’s welfare spending cap, particularly on low-income families? Does the cap not, in effect, lock in the UK Government’s welfare cuts?
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I think that it is better for Bill Scott to respond to questions about the long-term impact of the cut, but my gut reaction is that it replaces delivery according to people’s needs with delivery according to some spurious political priority, and that is a sad indictment of where we are at the moment. Sometimes people’s needs might cost a little bit more, but we need to be prepared as a society to help them with that.
Bill Scott will have tracked through the modelling further than I have, but for Oxfam it is a matter of principle that, if people need support, we should stand ready—as the sixth or seventh richest country in the world—to support them as needed.
We are spending less now on welfare as a proportion of GDP than we were spending in 1992. It is not that it has become unaffordable because we are spending more on it but that a political group in society has decided that we are spending too much on it and that we should spend it on something else. In other words, choices have been made about the level of spend.
I am worried about the welfare cap. Once you create a cap, it can be lowered as well as raised. In other words, the principle that is being introduced is a dangerous thing, and I completely agree with Katherine Trebeck that the problem is that billions of pounds of benefits are unclaimed every year. If, as a response to the welfare cuts that are taking place, the Scottish Government and local authorities invest in welfare advice and manage to get more people to claim the benefits that they are entitled to, the cap will act as a barrier above which spending cannot rise, and there will have to be cuts to benefits. It does not make a great deal of sense, because it will deprive those in most need of support of the support that they need, and that is just morally wrong.
The briefing paper, which looks at the reasons for growing inequality, refers to the research by David Eiser and Professor David Bell that found the main drivers of inequality to be disparities in pre-tax income or market earnings. In the case of a yes vote, does having a new Government, a new constitution and new policy making not give us the opportunity to create one tax and welfare system to which credits can apply, so that we do not have that multifarious mechanism of trying to balance welfare credits against tax revenues? Would it not provide us with the opportunity to create one cohesive tax and welfare system?
Maybe. Potentially, but the fact remains that there is a lot that can be done now. I suspect that that is not the discussion that you want to get into, but there are lots of levers that are currently available. The idea of simplifying the tax and welfare system is exciting, but we would urge the Westminster Government to do that right away. If we are looking at pre-tax earnings, we come back to issues such as the living wage, the types of jobs that are available, who is getting them and how inclusive they are, and whether people who have been out of work for a while are included. All those are things for which levers are currently available, so there is a lot that can be done.
I am sorry to interrupt, but one of the things that your excellent paper says in relation to fiscal policy is to do with the application and enforcement of tax and tax avoidance, which is not yet under the will of the Scottish Government. The proposals are surely outwith the remit and control of the Scottish Government. Between £32 billion and £100 billion is lost in tax evasion in the UK, and that is appalling given what we are talking about today.
I do not want to make up Oxfam policy on the hoof, because I would get into deep trouble when I got back to the office if I did, but Margaret McDougall mentioned procurement, and perhaps we could start saying that Scotland will not procure from any company that is found to be avoiding or evading tax. Perhaps we are not going to support certain businesses. I will not mention any names, but there is one that starts with an A and ends in N that we know is a blatant culprit when it comes to tax evasion and avoidance. I return to my point that there are levers that can be used to address issues now.
Can I ask a very brief question?
You should be very brief, as you have had a fair crack of the whip.
Personal independence payments were referred to. Have they been a positive step, Mr Scott? What has been disabled people’s experience of their implementation so far?
They have not been a positive step so far, and they are not likely to be. The approach was always designed to achieve a 20 per cent reduction in the amount that is spent on supporting disabled people. As a consequence, many disabled people of working age—pensioners and children are exempt from the new assessment process—will lose their entitlement either entirely or partially. Tens of thousands of people have not yet had an assessment. The introduction of PIPs has been very badly handled by the companies that were given the contracts to deliver them, Capita and Atos. They simply do not have enough people in place to do the assessments.
We are exceptionally worried about people in remote and rural areas of Scotland, who have basically been told that they will not get an assessment until there are sufficient people in their area to merit somebody going out to see them. I imagine that that could be quite a while for people who live on Skye or the Western Isles. Thousands of people have been waiting for over six months. There are many problems.
The implementation of new benefits is always difficult and always more difficult than Governments imagine. Peter Kelly, Katherine Trebeck and I probably all agree that there are a number of things about the universal credit that represent simplification. The system could achieve benefits, but the problem is that, to achieve them, many people on low incomes will see a reduction in benefit rather than an increase. To make work pay is to make not being in work even worse than it currently is. We can go for a better system, but we need to think through the consequences of what we hope to achieve.
We need to move on. We are a bit behind the clock.
In reading your written submissions, I was struck by the fact that you described long-term, deep-rooted and profound structural problems. Given the realpolitik, which is that George Osborne is promising continuing austerity—austerity plus—Ed Miliband is promising to match that but just to do things slightly differently, and the whole political geography down south has moved to the right because of the resurgence of the UK Independence Party, how optimistic are you that we will see any real change to the awful situations that you have described?
I am not a political commentator and I will not give the committee estimations of what I think election outcomes will be in the future, because anyone who knows me will know that I am notoriously bad at guessing election outcomes.
With the greatest respect, I did not ask you to guess that. I described a scenario that few people, I think, would disagree with. I am not asking you to call the result of the next UK election in 2015. Whatever the outcome of that election, do you see there being any change in the circumstances that you have described in your written submissions?
On the policies that the current Government has enacted, if we look only at the welfare changes, we would say that they do not address the structural, systemic problems that we see in our welfare system. I do not know whether that will change in 2015, and I cannot really guess the prospects. We are a non-political organisation, so I will not comment on what I think political changes in other parts of the UK might mean. However, the UK Government’s current policy direction is not addressing some of the issues to which you referred.
I will come back on the welfare cap, because I did not get a chance to comment on it. Colleagues have already criticised it and it is possibly the worst of the policy choices that have been made. Bill Scott just mentioned that we could possibly be supportive of universal credit because it is a simplification and is about easing the transition back into work. Many of the welfare changes are predicated on getting people back into work and making the system work more effectively. The welfare cap does not do that and is not even intended to do it. Not a single person will be helped back into the labour market because of it. Such policy choices are the wrong ones. At the moment, the policy direction that Mr Osborne has set out for us is on the wrong course.
Do any of the other witnesses want to comment?
As somebody who has looked at history quite a bit, I would just say that things can change rapidly. Somebody better than me once said that a week is a long time in politics; a year or more can be a long time in politics as well. Rapid change can come about.
Sometimes, social movements bring about rapid change. In Scotland at the moment, there is quite a movement around the referendum. Whichever side of the debate you are on, there are people who are interested in politics again for the first time in many years. That is quite hopeful, because it will be a step forward if politicians listen to the sort of society that the people who have been disengaged and are now re-engaged in politics want. That can be transformative only within Scotland, but it could have a wider, knock-on effect throughout the rest of the UK in terms of re-engagement with a group in society that has largely been written off—the people on low incomes, who political parties have assumed would vote for one party for ever, which is turning out not to be the case.
I am not a political commentator either, but things happen, movements occur and things change more rapidly than people sometimes imagine. I am hopeful that things can change for the better. I agree with Peter Kelly that, if the current policy direction is pursued, the structural problems will not be addressed and we will be in the same place, but I think that there are possibilities.
I am a bit anxious about commenting. The reality is that there is no articulation of a wholesale change to an economic model that I would describe as offering us the idea of building back better.
I have not read the white paper in depth, but a quick scan of it suggests that it is a similar type of low road that is all about faster economic growth and exploiting the oilfields when our environment will not be able to handle that. I have yet to see a fully articulated radical alternative. If we are looking at the scenario in the white paper, we need to do a lot more work. What opportunities independence offers is open for another conversation.
Part of the background to Mike MacKenzie’s question was short-termism. I completely share the discomfort about that. Many of our problems today stem from undue focus on the short term, whether by business or politicians. On the way over, I was talking to Peter Kelly about the innovative work on 10-year budget cycles that has been done in the state of Oregon in the United States. That is where we start to get Government departments joining up. We start to get out of the panic over attribution and year-to-year budget pots.
There are a lot of lessons around the idea of preventive spending. In the UK, Scotland has pioneered it and has made its mark in that regard. I constantly refer colleagues down south to the work that is being done on preventive spending here. That is a basis from which we can go a lot further if we are serious about upstream prevention, which prevents the harm from happening in the first place.
10:15
That neatly leads me to my final question. I ask you to end on an aspirational note. I ask each of you to be aspirational and to imagine—assuming that the people of Scotland vote yes, whichever way you feel we ought to vote—that you are in charge of the new Scotland, with all the levers of power at your control. Assuming that you do not just want to put sticking plasters over the problems or to paper over the cracks and that you want us to move in a better direction of travel, what would you do? Be aspirational. Give us some advice.
If you want to answer that question, please do so very briefly.
If you want us to point to a top three of policy changes, we are in an incredibly complex situation, and that is always very difficult to do. In terms of favourite policy ideas, which are perhaps not the same as the key ones, I am compelled by the idea of earnings ratios, in whatever institution. I am excited by the idea of pro-social business models—although that is a rather ugly term—beyond purely extractive, for-profit, faster and faster short-term shareholder value. I am referring to things such as co-operatives, social enterprises, benefit corporations and so on. Those are two, for a start.
Invest in people. They are the greatest riches that we have in our society. I say that at a UK level and a Scottish level. I see the wasted potential of so many people in our society, not just disabled people but those living in our poorest communities. If we could unleash that potential, we would have a genuinely rich society, which anybody would want to live in. That would be my aspiration: to begin to invest in those people and to unleash their potential.
In a similar vein, I think that we should devolve power to communities and genuinely empower people to take control over their lives and their communities so as to bring about change. That is how real change happens, and that is the kind of change that we would want to see.
Dr Trebeck, how familiar are you with the collective bargaining approaches that are taken in some European countries as an alternative to the formal minimum wage? In all the talking about the living wage, it struck me that there are different ways of getting it. Either we have legislation that sets it out or we have the system that I think is present in seven of the nine western European countries with a lower level of inequality, whereby there are national collective bargaining agreements that are enforced through law. Have you considered that in your international studies? If so, do you have a view?
I am not an expert, but I know that those agreements are part and parcel of a much wider system of partnership between businesses, trade unions and government bodies. That is quite a different way of doing things. There is boundless scope for Scotland to learn from that. However, the sort of economy that we have in Scotland is not particularly conducive to that. We have an atomisation of the labour market, people on insecure zero-hour contracts and a huge rise in the level of self-employed people—people who used to be part of a labour force, working for an employer, who are now branching out on their own because they are not getting those paid jobs. There are serious challenges in getting to that stage and being able to undertake such wide-scale collective bargaining.
As for the idea of the living wage, it is a terrible situation when the state is subsidising employers who are paying chief executives in the millions but who are apparently too tight to be able to pay their staff a living wage. We need to start looking at those businesses, such as supermarkets, that have been identified as clearly having enough money to pay their chief executives massive amounts of money but apparently do not have enough to pay their staff.
Again, the lever of procurement is an obvious tool, but there are all sorts of other mechanisms. I understand that Ecuador has something called a dignity wage. I do not know loads about it, but I understand that they say to businesses, “We’re not going to force you to pay the living wage, but you are not going to be allowed to pay dividends to your shareholders until you do.”
It comes back to the idea of what is affordable. The Resolution Foundation has done a lot of work on this. Are we going to say that it is okay for the staff of businesses that say that they cannot afford to pay the living wage to continue to live on poverty wages? I do not think that that is good enough. We must come up with a collective solution, if we want that particular business to stay in operation.
Peter Kelly is much more of an expert on that issue, so I will hand over to him.
A couple of years ago, Unite the Union had a proposal on sectoral bargaining, which concerned the ways of spreading the living wage by different means—in that, it was not dissimilar to the procurement approach. We are part of the European anti-poverty network, which is doing some work on different approaches to the establishment of living wages in different countries.
Katherine Trebeck mentioned the importance of tripartite arrangements, which is a tradition that we do not have here. In these debates, we often look to the Scandinavian countries, where tripartite approaches are well established and are part of the cultural way of doing business and of reaching negotiated agreements. If we want to transform the way our economy works, we have to understand that it is not only business leaders that make economies work; it is also organised labour, unorganised labour, the third sector and so on.
It is interesting that the countries that adopt that model include Germany and Austria, which have not only prospered in terms of equality but have, in the face of the challenges over the past 10 years, done the best in orthodox economic terms as well.
On a slightly adjacent issue, one of the hallmarks of those economies is the level of gender participation and the ability of women to enter the workforce, especially compared to the situation in the UK. Could that have a material impact on poverty? Is childcare one of the things that would be a useful step in that direction?
The sooner that we start seeing childcare as part of an active labour market policy regime, the better. It must be one of the most simple solutions for employment creation and employment enabling. We are talking about good quality childcare, so the issue of how we pay the staff who provide the care is important, as are issues such as the location of the facilities and the creativity that is involved in their establishment. I am not an expert on childcare, but I think that, if there are any easy wins, childcare has to be one of them.
I agree. This is slightly off topic, but we have to remember that the transformation of our economy is not simply about employment. Today, we have focused on issues such as employment and the quality of jobs. Those issues are vital, but we have to remember that, for many people, accessing the labour market is not an option, either in the short term or the much longer term. When we are thinking about our future economic system, we have to think about how it works for such people.
As an aside to your earlier question, I have just remembered that Germany has just introduced a national minimum wage, which is an interesting development.
On the issue of a national minimum wage, you will be aware that minimum wage increases in this country have fallen behind inflation. The Government’s white paper says that that will be addressed in an independent Scotland. Would you welcome that?
The need for above-inflation increases in the minimum wage is unquestioned. One reason why we made progress on addressing in-work poverty in the first part of the last decade was that we consistently had above-inflation increases in the minimum wage. That stopped after 2004-05, and we have not seen much progress since then.
With regard to the gender issue, above-inflation increases in the minimum wage were one reason why women in particular were lifted out of low-paid employment to a greater extent in the first part of the last decade.
I suppose that that is a clear illustration of a power that the Scottish Parliament does not have at the moment but which we could use to address poverty if we had it.
Yes.
No one should be working for their poverty.
Obviously, no one can be satisfied with the levels of inequality in our society, and I support further devolution of welfare powers, but is there not a danger in seeing constitutional change in itself as a panacea? We had the discussion on local government funding, for example, and there is a proposal in the white paper to cut corporation tax, which might result in the low-road approach that Dr Trebeck mentioned.
I was interested in her comment that inequality in wealth and income is a problem across the developed world. Is it not the case that some of these discussions will have to take place at an international and global level and not just as part of a debate on Scotland and the United Kingdom?
Absolutely. I come to the debate from the perspective of someone who grew up in Australia. In a crude sense, Scotland is talking about going in the same direction as Australia—for example, as you will see all too well in the media this week, Australia has kept the monarchy. However, the case of Australia shows that independence is not enough. It might be part of the story or it might not be, but there are much bigger forces at work. If you build an economy in which you still kowtow to corporate interests, focus on a narrow type of economic competitiveness and pursue a business-as-usual model, you will not be doing anything different at all, under any sort of constitutional arrangement. We need to be much more creative with regard to the future that we are describing, whichever way we settle the independence debate on 18 September.
As we have a few minutes left for this panel, I will ask Katherine Trebeck one more question. Earlier, you talked about the need to clamp down on tax avoidance. In the budget a few weeks ago, George Osborne, the Chancellor of the Exchequer, announced a specific measure to clamp down on what I think are called bareboat charters in the North Sea oil and gas sector, which are a well-known tax avoidance measure that is used by international oil companies. Do you welcome that, and was it right that George Osborne’s measure was condemned by the Scottish Government?
I am afraid that that is not something that I know much about. If Oxfam has commented on that measure, I could dig out that comment and forward it to the clerk.
As a general approach, however, you would welcome measures to clamp down on tax avoidance schemes.
Absolutely, as long as they are genuine and do not create more loopholes. I think that there has been criticism of some mechanisms over the past 18 months or so, with the suggestion being that there has been good rhetoric about clamping down but the mechanisms that have come into fruition have just opened up yet more loopholes or do not go far enough. However, as I say, I am not an expert on the issue, although I am pretty disgusted by the extent of it. I will find out whether Oxfam has commented on the issue and will forward that response to you.
That would be helpful.
I thank the witnesses for their evidence and particularly for keeping to time, which has been useful.
10:29 Meeting suspended.
We continue our inquiry into Scotland’s economic future post 2014. I welcome our second panel this morning: Dr Jim McCormick, Scotland adviser with the Joseph Rowntree Foundation; Morag Gillespie, research fellow in the Scottish poverty information unit at Glasgow Caledonian University; and David Eiser, research fellow at the University of Stirling. I am obliged to you all for coming, and I thank you for the written submissions that you have provided.
We are a bit tight for time this morning, although we did extremely well with the first panel, which finished dead on time. I hope that members will take that as a precedent to continue with the second panel. We aim to run the session for approximately 80 minutes and to finish if we can by 11.45 or just slightly before.
I remind members to keep their questions short and to the point, and it would be helpful if we could have answers in that form, too. I ask members to direct questions initially to one panel member if they can. If anyone else wants to respond to a question that has been addressed to someone else, it would be helpful if they could catch my eye, and I will bring them in as time allows.
I will start by asking a question that is similar to the first question that I asked the previous panel, on the way in which we frame the debate on inequality. We all recognise that there are great challenges with regard to inequality in income or wealth that affect not just Scotland and the UK but the world as a whole.
I direct the question initially to Mr Eiser, whose submission refers to the fact that inequality in Scotland is roughly average in comparison with OECD countries. In the UK, the figure is impacted by the London effect, as London is a world city with a great many people of extreme wealth, which skews the figures.
John Rentoul, who writes for The Independent on these issues, said that, in income equality, the UK ranks 43rd out of 156 countries in the world. In the OECD rankings, we are 28th out of 34 countries. The figures are better for wealth equality—we rank 14th out of 34 countries, and in the past decade we have become less unequal as a society.
We hear people making statements like, “The UK is the fourth most unequal country in the world.” Although I recognise that we have challenges, is it helpful to the debate to have those rather wild and unsubstantiated claims made about where we are with inequality?
We need to interpret such rankings with caution. The figures that have the UK as the fourth most unequal country in the world tend to exclude a number of other OECD countries for which data does not exist. There is an immediate problem, therefore, in saying that the UK is the fourth most unequal country.
Nonetheless, it is useful as a first step to get a sense of the situation. There are global factors that influence inequality around the world, but there is still a strong role for policy in influencing inequality. Looking at how trends in inequality compare among countries is certainly a useful first step in understanding how effective policy is in the UK relative to other countries, and what else we might do to address inequality.
I am sure that we will want to explore a few of those issues in the course of questioning. Does Jim McCormick want to comment?
Only to say that, some years ago, we did work on public attitudes to economic inequalities and, slightly to our surprise, we found that the public are more interested in and concerned about economic inequalities, especially in earnings, than they are about poverty, which has been the focus of most of our work.
Economic inequalities matter, and people are probably willing to consider a broader range of policy responses than those that have traditionally come from political parties. We have tended to focus on what that means for people at the bottom, where globally there is, one might say, a downward pressure on wages and returns for labour for people who are not highly qualified.
In a sense, in the UK in the past 20 years, we have been trying to climb up a down escalator with regard to people who are at the bottom end of the jobs market. However, that misses out the trends at the top. We cannot try to understand poverty and inequality and what is happening in the economy without looking at the relationship across the whole society, and that has been a consistent blind spot across the UK.
I agree with the comments that have been made so far. However, I would add that one thing that enables the UK or Scotland to be in all those different positions is that one can use an infinite number of definitions of inequality, just as one can for poverty. My shelves are groaning with the arguments about which definition is appropriate for what.
As David Eiser said, there is missing data, and different quality in data gathering. It is therefore possible for the UK to be in different positions. From all the stuff that I have looked at, what strikes me is that the UK is consistently at the wrong end of the list. It is never at the good end of the graph with countries such as Finland, Denmark and Norway; it is always much closer to Singapore and the USA. Whatever definition we use, the UK tends to show a degree of inequality for a rich nation. It is much less unequal than a lot of countries in sub-Saharan Africa, for example, but that is not where we should be looking.
Another point about definitions is that, often, most of what we judge and assess is based on using the household as a unit of measurement, which can hide big inequalities within households. In particular, the position of women can be underrepresented in our assumptions about what happens within households. It is not an easy task to untangle that, but it is not useful to ignore it just because it is difficult.
So you are saying that it is an inexact science.
Yes—that is the short answer.
I will direct my first question to Morag Gillespie. Over many decades, the inequality agenda has definitely been there, and we have seen various attempts by the current and previous Westminster Governments to tackle it on the fringes.
Do you see the referendum—which is what our inquiry is looking at—as an opportunity for change? If so, in what direction should that change be going?
I have been arguing with others for many years for changes to the way in which we approach poverty and inequality. Over the past couple of decades we have focused more and more on the poverty end of things, and on poor people. We have individualised the issues around poverty—sometimes in quite an extreme way—and people seem to be accepting that more and more. That is a huge concern with regard to public attitudes, what politicians say, what newspapers write and so on.
As Jim McCormick pointed out, we focus much less on the exponential growth in high wages and the huge growth in wealth in our society—at a cost, I think. I welcome any opportunity that opens the door to a debate about how we could do things differently.
10:45I know that this has been said before, but let us be honest: the one certain thing is that, were we all sitting around the table inventing new systems for social security and income security in work, none of us would invent the systems that we have now.
The referendum presents an opportunity that has not come up in the past 20 years—one with the potential to sweep aside everything and start with a new sheet of paper. Whether the result is devo max or independence is almost less important than the freedom of mind that the situation brings, which will allow people to think outside the tramlines that we have all been struggling with for years.
We have been tinkering at the edges of a system that does not work. The fact that most people in poverty are in households where someone works is testament to a system that does not work. I doubt that trying to make the system work more efficiently will achieve much, other than more tinkering at the edges of the figures that we are dealing with. That is not a good enough aim, so I want to look at how we can do things differently. Other countries have better systems; let us learn from them.
Regardless of the outcome of the referendum, we have an opportunity for change.
Yes.
We can do more to tackle poverty with current powers and budgets, despite the limitations of the settlement. That said, if we want to do things differently, charter a different pathway and be more effective in responding to the different needs across Scotland—for example, there are different regional and local housing and job markets—a different settlement would be needed and more powers would need to come to Scotland under whatever constitutional change may happen.
I declare an interest, in that our chief executive, Julia Unwin, is contributing to the independent expert group on welfare and constitutional reform. The Joseph Rowntree Foundation is participating in the expert group not because we take a position on the referendum—we do not—but because, were there to be a yes vote, we would want to contribute to and help shape what might be a reformed welfare system. Were there to be a no vote, we would hope that all the thinking, analysis and time that has gone into that expert group would bear fruit under, for example, further devolution, even if that may be on an uncertain timescale. That is our hope.
We are approaching the referendum as something that is probably the only or best opportunity in the UK to rethink from first principles a more effective job and housing market and social security system for the times in which we live and then to fit that to whatever constitution we find ourselves with.
I ask the same question that I put to the first panel: are we saying that a new constitutional settlement would provide an opportunity to produce an integrated tax and benefits system?
Yes—if you want. That would make some sense. I have spent years arguing for and defending the value of a contribution-based system—in other words, we should have a social security system rather than a residual welfare system, which is what we are increasingly moving towards and which has much more means testing rather than contribution-based benefits. Beveridge intended contributions to be the cornerstone of the system, with means testing being residual and at the margins. However, that did not work as our society changed.
A lot of the complexity and the inconsistencies that come into the system could be removed with a well-thought-through integrated tax and benefit system. However, that alone would not be enough.
The key thing is that the key policy areas need to point in one direction, at a common aim. If our aim is to reduce inequalities, economic policy, industrial policy, labour market policy, housing policy, social security policy, taxation policy, education and training policy and childcare policy all need to work towards that common aim. There are a lot of issues in there.
To some extent, those policies are being developed in silos and can work against one another. There are benefit conditions that are not necessarily to do with means testing or contributions. Housing benefit, for example, can involve conditions to do with where you live, how many people live in your house and how many people were in your family five years ago but have now left the house. What area you live in determines—particularly in England—how much help you get with council tax and so on. Such a system makes the implications of any changes impossible to really understand. Coherence is needed.
The system also makes it much more difficult for people to claim what they are entitled to. There is far more underclaiming of benefit entitlement than there is benefit fraud, and both are dwarfed by tax evasion and tax fraud.
Morag Gillespie talked about the opportunity for Scotland to start afresh with independence. Looking at the trajectory of the main UK parties that are likely to be in government post-2015 and the consensus that exists in Scotland, do you think that we need independence to have that change of direction—that fresh start—that you anticipate?
I do not know whether I can really answer that. What I can say is that with control over more areas—whether that is through independence or a different settlement—there is potential for Scotland to do things differently. However, it would not work if Scotland had control over social security, for example, but not any of the other, crucial areas. We need a system that works with other aspects of policy, rather than things working against one another.
I read some work by the Institute for Public Policy Research that argues that certain types of welfare benefit should be devolved to Scotland, but others should remain at the UK level. Personally, I think that down that route lies chaos. That would provide no clarity and would create the most difficult circumstances for people to claim any entitlements that they may have.
There has to be some coherence to policies that work together. I appreciate that a political process is going on to decide the issue, but I would make the same arguments about the social security system—I have done so over many years—about the level of the national minimum wage and about all these things to whoever will listen to me on the subject, at whatever level of Government, to be honest.
We have an opportunity here because of the debate in Scotland, but I cannot argue that one outcome is inevitable, because it depends on what the politicians decide. An independent Scotland would not necessarily mean that we would have the things that I would like, such as an integrated tax and benefits system; it would just mean that there would be an opportunity to debate that, which may lead to some changes.
One of the anti-independence parties, the Labour Party, has already unveiled its offer in the event of a no vote. What is your response to that?
My position would be to continue to argue for the policies that I think will reduce inequality and poverty. Am I totally convinced that any of the parties are taking exactly the position that I would advocate? Probably not, so I would continue to advocate those policies. I am not in a position to argue for one political party or another, to be honest.
As we have already heard this morning, the issue of inequalities and poverty is very complex. If it was easy to fix, it would have been fixed already. You touched on that when you said that we have just been tinkering around the edges, but what could be done now? For example, what could be done about the living wage, which you spoke about, that we are not doing now? You also mentioned that other countries are addressing the issue much better. Could you expand on that a little bit and say what other countries are doing and what the cost would be? I am not looking for specific figures.
I think that Jim McCormick will also have something to say, but I can give a couple of examples of what we get wrong that the Nordic countries, for example, do a bit differently. There are two areas where we have used the benefits system in a way that has not been wholly effective. How we decide to subsidise housing benefit and childcare determines how things play out.
It is argued that our support for childcare—through tax credits and through the various initiatives that are in place—is helping to increase the cost of childcare. It is having an adverse effect on the childcare market—the costs that people have to pay—unlike in countries where the investment is in the delivery of childcare rather than in subsidising people to pay for it. That different approach is proving to be more effective. It does not increase the costs in the same way, so it makes childcare more accessible to poorer people.
Part of the argument about the escalating cost of housing benefit is that housing benefit itself has helped to drive up the cost of housing. We have a serious problem in Scotland—although not to the same extent as exists in the rest of the UK—with the cost of housing. If ordinary, low-paid workers cannot afford to live in the home that they rent, we have a serious problem. We need to tackle that problem with the greatest urgency rather than simply trying to use an ever-increasing housing benefit system to pay—for what? For private landlords’ profits? I am not sure. Even in public housing, the costs are growing and growing. Housing has to be affordable for ordinary people. If people are to live on low wages—it is going to be a long road to change that—we need to make housing affordable rather than just using the benefits system in effect to increase the cost without necessarily seeing the benefits.
Supply and demand obviously have an effect.
It is about how we respond to that. I am not saying that we must do one thing instead of the other; I am saying that the balance of those things has to be right. There is increasingly a view that we need to put more investment into childcare and housing and tackle the affordability of those two things rather than just using a not very good benefits system to try to prop them up, which in the end just increases the costs.
I agree. In any system, we need intelligent Governments that know how to procure services in the marketplace, how to hold down costs and how to drive up quality. The argument that Morag Gillespie has just made on housing and childcare can also be made—as it was by the previous panel—on the subsidising of low pay and where the balance of costs should lie between the taxpayer and the employer, for example.
Over time, we need Governments that will shift that balance. For example, with more powers, we might want to spend less on housing benefit over the next 10 years and more on housing supply to boost supply, hold down costs and so on. That would be good all round and would include employment multiplier effects.
The question was also about what we can do with existing powers. In the past year, we have looked at the child poverty strategies of the three devolved countries, the differences between them and the different interpretation and use of limited powers.
11:00I will mention two challenges for Scotland. The first is the need to take faster action to close the attainment gap in schools. I think that we are complacent about the attainment gap, which is big and persistent. In Scotland, kids in the bottom 20 per cent are performing at the same level as those in Turkey, so we are at the lower end of the pack in OECD terms. That is a very big issue when it comes to their longer-term prospects, longer-term earning potential and longer-term poverty risks, and it is something that we could do more about now.
The second challenge is around adult skills, which we have also been complacent about since devolution began. Someone who is poorly skilled has one third of the chance of getting on-the-job training in the workplace of those who already have significant skills. Through public investment in training in the workplace and through employers’ own investment and, to a smaller extent, what individuals spend on their own skills and training, we are widening the gap in earning potential over time. I am not suggesting for a second that we currently have the powers to change all that, but we could do substantially more on those fronts with current powers and budgets if we made closing the gap our main focus, rather than improving broad averages and overall attainment.
I agree with all the points that have been made.
On what we can do to address inequality and poverty, I find it useful to think about three broad areas. The first area is taxation and personal benefits, which we have already talked about a bit. Of course, most of those things are currently reserved, but the exception is council tax and some reforms to that could be made that would reduce inequality.
The second area is what we might call wider public services spending on non-cash benefits, which is the kind of thing that Jim McCormick just talked about. I reiterate what he said about education spend in particular. Health spend is also important. Given that, ultimately, the underlying drivers of inequality are around changes in the demand for skills and how well we meet those changes, education spend is critical in addressing inequality, including intergenerational inequality.
There is evidence that the graduate earnings premium is continuing to increase. Even though there is an increase in the supply of graduates, the returns to graduates for their qualifications are continuing to increase. Moreover—this is perhaps contrary to what you might expect—there is some evidence that there is a skewing over time, with people from better-off households and families being more likely to participate in higher education. When we take together those two things—higher returns for education and the skewing towards greater participation by people from higher-income households—we can see that we are at risk of passing on some of that earnings inequality from one generation to the next, which will inhibit social mobility.
Of course, education inequalities start at a young age and we could probably do more to address them at an early age. England now has the pupil premium, which is a £900 supplement for disadvantaged pupils. I am not sure to what extent we have a similar level of progressivity of education funding in Scotland.
The third area, which is currently largely reserved, is what we might call labour market interventions, which can include anything from stuff around the minimum wage and the living wage—things can be done to encourage their uptake and use—to zero-hours contracts and such like.
I find it useful to think in terms of those three areas. Within each of them, things can be done within the existing devolved settlement. Not everything can be done within the existing settlement, but some things can certainly be done.
Could I add a very quick point about the current settlement? One of the areas that I and colleagues in the women in Scotland’s economy research centre have looked at is the modern apprenticeship scheme, which is really the flagship programme. There is loads of room for improvement in the scheme, particularly in relation to occupational gender segregation. While the number of women involved in modern apprenticeships is increasing, if we look below the surface we can see that they are being involved in a very occupationally segregated way. Women are much more concentrated in the lower level apprenticeships, which are shorter and give them lower qualifications and, of course, lower earnings potential in the end. That is true of apprenticeship schemes throughout the UK, but Scotland could do much better in tackling the quite extreme inequalities in access to jobs.
That is where things need to join up. The Scottish Government supports the close the gap scheme, which is about tackling pay inequalities between men and women and occupational gender segregation, but at the same time the modern apprenticeship scheme is gaily reinforcing what is out there in the wider labour market. That is a good example of where there is plenty of evidence to show what could be done. Again, I am not saying that it would be easy, but progress could be made.
I direct my first question to Morag Gillespie. The debate so far has focused largely on the prosperity of the nation as a whole, but you pointed out that it is sometimes not terribly helpful to look at prosperity even within a household. Both this panel and the earlier one have made us aware of the danger of our obsession with the average, because so many people are not average. I would be grateful if you could elaborate on your comment about a citizens basic income; my party very much supports that policy idea. Professor Ailsa McKay spoke on that issue in the Parliament, not too long ago. It seems to me that we may be missing an opportunity to look at things afresh and come up with a system that works. I believe that even previous UK Conservative Governments considered the issue quite fully. Why are we not making any progress in that area?
I have to put my hands up and say that my good colleague and friend Ailsa McKay was the expert on that subject. I am a supporter in principle, but without her depth of knowledge. We are working on some projects now, so my knowledge will improve over the next couple of years.
There is growing interest in citizens basic income as an alternative to the systems that we have. As I said earlier, no one would invent the system that we have today. There are complexities in the contributions-based system, which was based on a male breadwinner model of households, in which women stayed at home and men worked. The structure was set up at a time when that model was the norm.
I argue that we need to take account of whatever the family formation is, whether it is lone parent families, of which we have many, couple families or singletons. We must take account of people in all their diversity and have systems that do not exclude them. One of the beauties of a basic income is that, in many senses, it is able to do that.
It is also the easiest way to integrate benefits and taxes in as much as, at its core, the principle is that everyone, whatever they do, gets the basic income and everyone pays taxes on all their earnings. At its most basic, that is pretty much the principle of a citizens income: everyone gets the benefit. I am not saying that there are no issues to resolve—the cost of disability and housing are two big issues—but we must look carefully at a system that puts more resources towards giving money to people, rather than to funding a complex administration that immediately becomes a barrier to vulnerable people’s claims, which is what we have with means-tested benefits systems. There is no efficient, low-cost, means-tested benefits system. As soon as means testing is introduced, the system becomes complex and people simply do not claim.
To my mind, there is a lot to commend looking at a citizens basic income. It can be partial or full, but, as I said, others will have the expertise to take the committee through models that show how the approach might work and, for example, what the social security bill might be. All of that can be estimated.
The citizens basic income recognises that paid work is not the only thing that matters. We cannot kid ourselves that it is the only thing that matters; I know that the only things that we seem to focus on are employability and work, but unpaid work, volunteering and—for some people—simply surviving from day to day are also good things and should be valued. When we have a GDP that treats construction as investment and childcare as leisure, we have a problem that needs to be sorted; the citizens basic income is consistent with that, because it makes it clear that everyone’s contribution matters. When people are freed from trying to work out whether they are better off in work—because they always are—moving into work actually becomes easier. Indeed, such an approach enables people to take risks.
Those are just some of the arguments for this proposal.
Thank you for that comprehensive answer. It is the women who provide so much of that unpaid care who are suffering terribly from some of the impacts of austerity.
I do not think that I need to ask Dr Jim McCormick for his views on that question but, on his concern about complacency with regard to the educational attainment of some of our children, if children are living in a house where there is no access to books, if their parents are, for whatever reason, not reading with them, if they cannot get anyone to do their homework with them or if they are going to school without any breakfast or even—who knows—any dinner the night before, it is difficult for our teachers to address such challenges. What do we need to do to help level that playing field? After all, this is not just about education, is it?
It is not. I think that you have framed the question very well. Which comes first—education, poverty, low inherited skills or whatever?
It is worth saying that there are quite substantial variations in how children from low-income families across Scotland fare in formal qualifications, which is only one way of measuring attainment. As a way of measuring it, it is too limited, but at least we have the data for that. The variations across Scotland are important, because they show that some authorities do better than others for poorer kids. If we track back to what we know about the early years, we will realise that, as well as needing to do a much better job of investing in high-quality pre-school education, we also need to support the home learning environment. That is where the evidence is strongest but where we do the least. In other words, we need to support families and their know-how of quite simple things that help children develop literacy skills earlier and keep on track. There are also home school partnerships, which are genuinely about co-production and understanding families’ aspirations.
Although the evidence for such approaches is very strong, we are putting very little investment into them, and instead we are continuing with the myth that long-term curriculum reforms, class size reductions or changes to other bits of the system are the most important route to closing the attainment gap. I think that the evidence suggests that they are not. The other things are much more everyday and relational, and every single school and community can take action on them, even if it would be much easier to make progress against the backdrop of a much lower poverty rate than we have at the moment.
My first question is for David Eiser. In your submission you say:
“Many commentators expect that inequality will begin to increase soon, as economic recovery combines with the UK Government’s welfare reforms.”
There are some—and I am one of them—who believe that the economic recovery is a mirage and is based on debt. In arriving at your own view, how did you establish in your mind where the economic recovery was in real terms?
11:15
There is evidence that, from the start of the recession onwards, inequality fell, but that is because real incomes fell more than benefits. Average real incomes are starting to increase for the first time in a while; however, that figure includes bonuses, so we could debate the extent to which this is a real recovery. I certainly think that we are seeing the beginnings of a recovery and, even without any policy change, you would expect that to begin to lead to an increase in inequality again, particularly given that many benefits either have been frozen in cash terms or are, in some cases, being uprated by 1 per cent a year, and given other things such as the benefits cap.
That was the basis of our view that inequality will begin to rise again. Indeed, the evidence from the Institute for Fiscal Studies is that, by 2015, we will back to the level of inequality that we had before the recession—
I am sorry to interrupt, but on the issue of averages that my colleague Alison Johnstone touched on, how much of this economic recovery has been impacted by the huge increase in pre-tax earnings in London and the south-east?
That is a good question. I am not sure whether we have the data to know exactly what is happening, but we can be fairly certain that it will not be the case that incomes are increasing equally across the entire distribution. The trend in recent years has been for higher-wage jobs to be associated with larger increases in hourly pay and average hours worked, whereas low-paying jobs have tended to be associated with a decline in the average weekly hours worked. As I said, I am sure that, to the extent that it has started, the recovery is not evenly distributed across the entire distribution.
You made a very good point about household debt. In fact, there is evidence that inequality contributed to the recession because disproportionate income gains at the top of the distribution were invested in financial markets, increasing the supply of credit to low-income households, which then became indebted. That was at the root of the whole thing. The evidence on household debt suggests that it is still a major problem and that too many households still have levels of debt that are too high. We simply have not got over that problem yet.
Dr McCormick, your referendum briefing “Child poverty in Scotland” states:
“Changes to benefits from 2012 are likely to have increased”
child poverty
“further.”
What will be the long-term implications on child poverty of not only the cap on welfare spending, but sustained welfare cuts that might come from Westminster? Of course, the question assumes a no vote in September.
We have looked at the trend in the decade up to the recession in Scotland and why child poverty fell faster in Scotland than the Great Britain average to find out what was happening when things were going in the right direction. It happened not least because of lone parents moving into work at a higher rate, a higher take-up of some in-work benefits and a higher number of hours worked on average across the household. Certain structural advantages built into the Scottish workforce and demography meant that we did a bit better during the good years.
Looking ahead to the end of this decade, the single biggest reason why child poverty is predicted to rise is the decision to uprate benefits and tax credits at below the rate of inflation, to which David Eiser referred. That sounds like one of the technical wheezes that Chancellors of the Exchequer pull out of the bag on budget day that are not very significant, but the decision to uprate benefits and tax credits at below the rate of inflation is the most significant decision of all. It means that, increasingly, people who are on the lowest incomes will fall below the waterline relative to inflation. It is a good thing that inflation has come down, but that gap remains.
All things being equal, the knowns that are in the system at the moment lead us to believe that child poverty will rise substantially to the end of the decade unless there are significant changes in social security policy or in labour market prospects. People who are out of work would have to move back into work at a faster rate and the number of low-paid staff would have to rise more quickly than has been the case in the past. It is not inevitable that child poverty will rise—poverty rates come down as well as go up—but the path that we are on suggests that it will rise substantially to the end of the decade.
That could be compounded once the notional economic recovery starts to absorb some of the quantitative easing money that has been flowing around the economy. That will generate increased inflation, so the situation could be even worse than we think.
It could be worse than we think but, on the flip-side, it could be better if other things change.
It is true that London and the south-east have a sucking-in effect, but it is important to balance that against the fact that, in every part of the UK, the differences within those nations and regions are bigger than the differences between them. In Scotland, Aberdeen is a full-employment city. There are some long-term unemployed people in Aberdeen but, compared to other parts of Scotland, the number is quite small. Someone who is unskilled in Aberdeen is far more likely to get into work than is the case in Glasgow or Dundee. That is even before we talk about differences between rural and urban areas.
Differences within Scotland are quite an important part of the equation. It is important that we work out what we should do now and what we could do if we had more powers to close the gaps that exist within Scotland in, for example, labour market participation rates.
My question is for David Eiser.
You say in your written submission that Scotland has higher income inequality than the Nordic countries, but you go on to say that tax and benefit changes can “only go so far” in addressing that. What are the Nordic countries doing differently? What can we do differently here in Scotland to get to the same level of equality that exists in those countries?
The explanation for why the Nordic countries have lower income inequality is partly historical and structural, in that those countries did not have such large manufacturing and industrial sectors as we did, so they have not had to deal with the same legacy of decline in those sectors that we have had to deal with. It is possible to debate what role Government policy played in that, but there is a historical factor at play.
In addition, as I think that members of the previous panel mentioned, there are higher rates of trade union membership and collective bargaining in the Nordic countries. There is a slightly different culture when it comes to the interaction between employer organisations and employee organisations.
A range of historical, cultural and structural factors explain the difference between the level of pre-tax and benefit inequality in the Nordic countries and the level of such inequality in the UK. That said, tax and benefit policy is important, too—I would not want to give the impression that we were saying that tax and benefit policy is not important.
The point that we were making was that pre-tax and benefit inequality is high in the UK compared to the Nordic countries, so we cannot just change taxes and benefits to achieve Nordic levels of inequality. That is not to say that taxes and benefits are not important.
Every single area of power that you have outlined—tax and benefits, plus employment law and industrial relations policy—is reserved to Westminster.
It is true that most of the immediate levers are reserved but, to go back to some of the things that we have said, the long-term drivers of inequality are the interaction between technological change and the demand for skills. There are strong links between health, income and education inequalities in all directions, so education and health policy are key levers for addressing inequality in the long term. You are right that short-term levers are very much about tax and benefits and labour market interventions, most of which are reserved, but there are things that can be done under the devolved settlement.
On the subject of what can be done, Dr McCormick talked earlier about the gap in educational attainment. You will be aware that that gap is often entrenched by the time that a child gets to school. Would that not therefore suggest that a transformative approach to early years education is needed and is probably the single most significant thing that we can do to close the attainment gap?
I agree with that. We are quite fluent when we talk about the affordability and flexibility of pre-school education, but we might be less focused on quality. If we are talking about disadvantaged children, it is only high quality childcare that makes the big difference to longer term prospects up to and beyond secondary school, if we get it right. We have evidence that transformative pre-school education has long-term benefits in closing those gaps.
There is a grain of truth in both sides of the referendum debate, so let me try to get this right. The yes side tends to say that we cannot transform if we do not have the powers and, crucially, the links back into tax revenues that we get from improving labour supply, which is mainly about more mothers going into work. The no side tends to say that we could do more now and asks what is stopping us.
If there was a no vote and there was further devolution, there would need to be substantial devolution of tax credit powers so that we had the revenue that would allow us to make up for some of the income tax that we did not have. A really important element of fiscal devolution would have to go alongside transforming childcare in a post-referendum world after a no vote.
If there was a yes vote, the fact that transforming childcare has been the number 1 social policy issue of the year so far must bode well for the kind of political space that we might find ourselves in. I go back to points made earlier: these things happen only if there is a strong political will, a long-term focus on the next generation and a genuine degree of political consensus that we want these issues at the top of the agenda, partly for economic reasons and partly for child development reasons, and to reduce the long-term risk of disadvantage.
11:30
The arguments for taking a very different approach to childcare are in the long-term economic interests of the country, not just those of the individuals and families, their employment prospects and the prosperity of their children, and also from the point of view of public services in the long term. I agree with Jim McCormick that good quality childcare can make a huge difference at various levels.
Ailsa McKay argued that Norway was a good model to learn from. There, most provision is public, although people pay fees if their income is above a certain level, and children over three are enrolled on a full-time basis. She also made the point in her briefing on childcare that we cannot assume that everything is okay once children are at school. We expect people to work a whole range of hours, not just 9 to 5, and certainly not just school hours, but out-of-school care of the quality or at the level that people need does not exist. That has been a significant area of loss as public sector cuts have taken place. A five-year-old whose mum works in the care sector and perhaps works shifts will perhaps also need some out-of-school care. We need to focus not only on increasing early years education but on providing the wraparound childcare that people need if they are going to participate fully.
That is not always easy, but out-of-school care is crucial, because there are stages at which children are in school for around only four or five hours. There must be childcare that people can access if they are not just going to do mini jobs. Mini jobs are not good enough; they do not pay good enough wages to lift people out of poverty.
Three members still have to ask questions. We are a little bit short of time, so it would be helpful if members could sharpen up a little bit on questions and answers.
I have a question for David Eiser. You have referred to the Nordic comparisons with our economy in respect of inequality. There is no doubt that we are behind the Nordic countries, which are often used in the referendum debate. According to figures from the OECD, it is also the case that, in Norway, Denmark, Finland and Sweden—particularly in Finland and Sweden—inequality is rising at a much faster rate than even in the UK. Do you know why that is the case? Is it because they have moved away from the policies that you talked about earlier? What lessons are there in that for Scotland with whatever the constitutional settlement is after September?
I think that you are right. Inequality in the Nordic countries increased more rapidly than it did in the UK, certainly between the mid-1990s and the mid-2000s, but I would not say that inequality in those countries increased much more rapidly than it did here.
I have figures from the OECD that show that it certainly did in Finland and Sweden, although, to be fair, not in Norway and Denmark.
Okay. I am not sure that the gap has continued to close since around 2005-06, but you are right that it closed a bit over a 10-year period. There were a couple of reasons for that. Those countries began to undertake some of the reforms relating to labour market flexibility that had already been implemented in the UK.
I was going to give another explanation, but I am afraid that it has gone.
That reason is helpful in itself.
I have an observation. If you tune into the current election campaign in Sweden, where people will go to the polls in September as well, you will find quite a bit of concern about how the school system is performing. Some people think that that is related to the fragmentation of the school system, but others do not take that view.
I think that you will also find consistently in the Nordic countries genuine concern about an insider-outsider tension that has grown up. Often, really well-qualified migrants—some are refugees and some are asylum seekers—struggle greatly to break into secure positions in the core labour market in those countries. That creates various consequences, one of which is starting to be felt in productivity and social cohesion. I would not exaggerate the point, but there are concerns about the shadow effect in the Nordic model. Although the Nordic countries have been open to new citizens, they have, to varying degrees, been much less successful at integration, inclusion and progression than we might have expected.
We have touched on childcare, but economic changes have all kinds of impacts on women. I suppose the simple question is whether women are considered enough in economic decision making, but I will make it a little more specific and ask whether in recent years, especially in the context of welfare reform, the gender differential has increased with that impact.
Morag Gillespie might be the best person to answer, since she is nodding enthusiastically at my question.
It is still the case that the different situation of women and men is not sufficiently taken into account when policy decisions are being made. There is still an assumption behind such decisions that we are all rational economic agents who will behave in a particular way, and the world just is not like that. However, it makes modelling a lot more difficult if you do not assume that, so people carry on with the models and treat childcare as leisure. Construction is considered an investment in infrastructure, but childcare is an investment in human capital at all sorts of levels, as we have already discussed, although it is not treated like that in calculating GDP.
One of the reasons why we struggle to find a different way of measuring our nation’s progress is that those things still stick quite hard for people in trying to take a broader view that incorporates the different roles that women tend to play more than men, but not exclusively. For example, women account for about 60 per cent of carers, which is more than their proportion of the population, but it is not the case that it is all women and no men who care, although care-related issues are more likely to affect women than men.
My general answer is that we are not getting that right. It is interesting that the Scottish Government issues quite a good statement each year about its progress on equalities when it is looking at the budget, and we have seen some general data about who has been affected by the bedroom tax, but do we have a gender analysis? All the original equality impact analysis said that women and disabled people were much more likely to be affected by that than men were, and the reason for that is that lone parents, particularly women, stay in social housing longer and throughout their lives, and when their kids leave home they become empty nesters. There is a perfectly sensible reason why more women than men would be affected, but do we know that and have we measured it? Do we know whether women are indeed affected more than men, as we thought? No, we do not, because the data has not been gathered in that way.
We are not good enough at understanding and taking seriously those differences. Even though everyone is affected by the same amount of money, whether it is £10 or £11 for a one-bedroom house, if three times as many women as men are affected, that is a gender inequality that we are creating by not paying attention to anything other than the overall figures or the averages that we mentioned earlier. The effect is different for men and women.
Mr Eiser, I would like to ask you something in order to better understand the data. You highlight the issue of poverty and inequality being related to fewer hours of work as well as lower pay. I take it that, because women are disproportionately the part-time workers, any strategy that addressed that would have a disproportionately positive effect on women. Is that broadly a correct understanding of the data?
You are broadly right. For in-work poverty, low hourly rates and low weekly hours worked are important. Interestingly, one of the changes in the past 10 or 15 years has been a big increase in part-time working among men. It was always prevalent among women, but we have seen a big increase in part-time and flexible hours among men. Although you are broadly right, the idea that the part-time or low-hours issue is a women-only issue is definitely false.
To reiterate some of the earlier comments and respond to your question, there are issues around the current benefit reforms and how they disadvantage women. The roll-out of universal credit appears to be disadvantaging women for at least two reasons that I can think of: first, the way in which maintenance payments are counted as means-tested income; and secondly, the fact that there is no earnings disregard for second earners in the household, which also tends to disadvantage women. There are ways in which women are being disadvantaged under the current policy, which in theory could be addressed relatively easily. It is a political decision that universal credit has been structured in that way.
The issue of lower and part-time hours is probably more a female issue, but to think of it as only a female issue would be wrong.
There is another retrogressive thing about universal credit. After years of understanding why it is important that women get the money in families with children, the payment of universal credit is being made to one person who is not necessarily the person who cares for the children—which is usually the woman. That will not make a jot of difference to any figures about poverty or inequality; it will just happen within the house.
The convener will be pleased to know that I will be very brief. I have two brief questions, and I am asking for one-word answers. I ask you, in the interests of clarity, to adhere to that strictly. Would you rather have us continue to spend £500 million a year on Trident, or would you rather have that money spent on creating a high-quality comprehensive childcare system in Scotland?
I take it that the one word that you are looking for is either “Trident” or “childcare”.
Sorry—I was not asking you the question. It is either yes or no: would you rather see £500 million a year continuing to be spent in Scotland maintaining and replacing Trident, or would you rather have that £500 million spent on creating a high-quality comprehensive system of childcare? Yes or no?
That is not your proposal, by the way.
Can we please not have a discussion between members of the committee?
I do not think that trade-offs of that kind are particularly helpful. For what it is worth, I would prefer the childcare, but we could have any number of those trade-offs, and it would be—
No, no—that is great.
It would be a rather futile debate.
So you would cut defence spending, Mike.
I would prioritise childcare over a lot of things. The specific is not relevant for me. I could add a long list of things that I would put well below childcare.
With the proviso that this is a personal view, I would of course opt for childcare. We could find a much bigger sum of money across the totality of our budgets—either current, further devolved or independent—by stopping subsidising market failure, which is what we are doing across the board.
With immaculate timing, that brings us to the end of the evidence session. I thank you all very much for coming. It has been very interesting for the committee to get your views. We appreciate it.
11:43 Meeting suspended.Previous
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