We go to our third item of business today, which is to take evidence from the expert working group on welfare and constitutional reform on its second report “Re-thinking Welfare: Fair, Personal and Simple”. I welcome Martyn Evans, the chair of the expert working group, and Lynn Williams and David Watt, who are members of the group. I also welcome Susan Anton, who is an economist and from the secretariat to the expert working group. I invite Martyn Evans to make introductory remarks before we open up the session to questions.
The group was asked to look at the medium and long-term options for reform of the social security system in an independent Scotland. Our report “Rethinking Welfare” outlines a Scottish benefits system for those of working age. We also provide a route map of how to get there.
I am indebted to my fellow group members for their expertise and insight, and for the healthy challenge that each brought to our discussions. I know that I and they greatly valued the independence of the group and the space that that provided for our deliberations. I would like to emphasise our independence, as it was a central condition of all of us joining the group. I valued having members from the academic and business sectors and the third sector. We were also fortunate to have members from around the United Kingdom and, indeed, from Europe.
In order to support our work, we developed a detailed and targeted process to help to build our knowledge and to establish a firm, evidence-based foundation for our recommendations. We received direct written evidence, convened stakeholder sessions, commissioned research and held meetings with benefit recipients, wider civil society and academics, among others. We have drawn extensively on the available demographic and statistical information on Scotland and its performance in relation to other parts of the UK and other nations in Europe.
I offer my very sincere thanks to all those from within the benefits system who shared their stories. Many of those were deeply personal, and while some were difficult to hear and others were uplifting, all were shared with us openly and honestly. Our report is greatly strengthened by that direct experience.
We did not formally meet the civil servants who deliver the current welfare system. It was a surprise to me to hear that over 10,000 civil servants deliver the system in Scotland, not just to Scotland but to significant parts of the UK. They are a great asset now, but they will be critical in the future should Scotland vote for independence. Nothing in our report should be seen as a criticism of those delivering the policies that we find so unfit for purpose.
We learned in evidence from New Zealand how there such delivery civil servants are much more highly valued than they are here. Here, policy civil servants have the status and influence. However, the best and most effective change process comes from combining experience around both delivery and policy. That is an important lesson for the future.
Our conclusion is that Scotland has a benefits system, developed over time, that is now too complex and too remote; it can be impersonal and can work against citizens’ needs for support. The system is increasingly losing the trust of those involved. An independent Scotland would need to start quickly to rebuild trust and confidence in a system that many feel is broken.
The key issue of trust is wide ranging: it includes the trust of those who receive benefit payments in a system that supports them and, importantly, the trust of society as a whole in the fairness and effectiveness of the system. A lack of trust erodes society’s continued support for those in receipt of social security and undermines the self-esteem and confidence of those in receipt of support from the benefits system.
We divided our work into strategic analysis, strategic choice and an implementation framework. Our strategic analysis is that Scotland has a very strong economic foundation. Across a range of economic indicators, Scotland is wealthy and productive; and its performance relative to the UK as a whole—its nations and regions—is strong. However, Scotland’s assets go further than just its people. There is a clear sense of the value of public services, communities and voluntary efforts in Scotland.
An example of the positive side of our analysis is that Scotland has a skilled population. In recent years, there has been a steady decrease in the percentage of working-age adults with low or no educational qualifications. Scotland compares well internationally in terms of educational levels achieved and performs best of all the nations of the UK, with the fewest people with low skills and the highest number with high skills. There is a warning, though: as the number of working-age people in Scotland with low skills has fallen significantly, the risks associated with being poorly qualified have grown significantly.
On the negative side, we found current employment rates among older workers to be significantly lower than the best in Europe. The employment rate for men aged 55 to 65 in Scotland is very low compared with the best in Organisation for Economic Co-operation and Development countries and the equivalent figures for older women are worse. So, although Scotland is somewhat more equal than the UK as a whole, it is still more unequal that many other OECD countries.
It is increasingly recognised that inequality is not just a moral issue but a severe drag on economic performance. We in the group firmly believe that paid employment is the best route out of poverty for anyone who can realistically be expected to work. However, the reality is that for too many people today a job no longer guarantees that. Changes resulting from the hollowing out of the labour market, the prevalence of low-paid jobs and the increasing casualisation of employment militate against the availability of secure, sufficiently remunerated work for many people.
11:00The committee knows very well that approximately 40 per cent of people live in households with at least one member in work and that poverty is not evenly spread across the population. For example, households with disabled people and people from minority ethnic groups are more likely to live in poverty. Over half the children in poverty are living in households where at least one person is working.
We discussed the issue of work at great length. To raise benefits to address poverty was not a credible proposition for us. For example, to ensure that a couple with two children had an income, leaving aside housing and childcare costs, that met the Joseph Rowntree Foundation minimum income standard would mean that they would need a £10,000-a-year rise. Of all the hundreds of thousands of sentences that I read for our report, the best sentence—in my view—came from a Spartacus network report called “Beyond the Barriers”. Spartacus is a network of sick and disabled activists who develop evidence-based policy. They wrote in the report:
“Work for those who can. Security for those who can’t. Support for all.”
However, it has to be good work, which depends on demand from employers for skills and the ability of employers to pay good wages, and it needs a business environment that encourages investment and productivity.
We found that unpaid care contributes significantly to the economy by providing support that would otherwise be provided by the state. However, caring for children or someone with a long-term illness or disability has a significant impact on the ability of households to work and the extent to which they need help from the welfare system.
Supporting individuals as they move from one phase of their lives to another—from unemployment to employment—is key for a modern social security system for Scotland. Such a system should recognise that society is changing, with caring and employment responsibilities shared among the family, and recognise the changing role of women and their contribution to the economy and society. Currently, inequalities in employment, rates of poverty, income inequalities and the costs of caring suggest that what Scotland currently has fails to offer adequate support.
Scotland is in a very positive position regarding the affordability of its social security system. The choice facing a future independent Scottish Government is how best to use its financial and human resources to obtain the best results for its people. We examined social security models from around the world, and fuller descriptions are in our report. The best known, perhaps, is the Nordic model, which is based on the idea of universalism; the liberal model provides safety-net levels of means-tested benefits for encouraging working; and the continental model is a contributory system that is generous to those in work or who have recently become unemployed but has little support for others.
We concluded that there is no ideal model type for Scotland to follow or, indeed, import wholesale. We must find our own approach in Scotland. We are very keen on policy learning from other jurisdictions, but our conclusion was that wholesale policy transfer from another jurisdiction is vanishingly rare and not appropriate in this circumstance.
Our strategic choice was that Scotland would have to rethink welfare. The approach in Scotland would have to be one that suits the needs of the people of Scotland, builds on explicit and agreed values, and commands sustained and widespread public support. We propose that the purpose for an independent Scottish social security system must be to provide a safety net through which individuals cannot fall; it must also provide an insurance against life events and maximise the life chances of every individual. In other words, it must provide a springboard as well as a safety net.
We looked at principles for a welfare system. The principles represent the tests against which a new policy or changes to existing or inherited policies should be proofed. They are grouped under three overarching headings: the system should be fair, personal and simple. It is clear to us that those three important policy objectives or principles are held in serious tension. Our conclusion was that it is a real challenge to deliver all three in equal measure. So, our report has chosen to emphasise fairness and personalisation in the short term, with a focus on simplicity in the longer term.
We have outlined our purpose and principles in the report. Who, then, are the partners to develop them further? We identified three. First, there are individuals with their families and communities. They need support from each other and from the state. Secondly, there are employers, who need individuals who are prepared for work. Employers also need the state to provide the economic background and the investment in infrastructure that enables their businesses to grow. Lastly, there is the state, which needs employers to create good jobs to minimise in-work benefits and maximise tax returns. Those partners are the critical cogs in the system. To assist them, they must have a wide range of civil society organisations to provide the oil to help them to work most effectively together. Those civil society organisations include trade unions, business associations, user groups, campaign groups, think tanks and academics.
On the implementation framework, we recommend that a national convention on social security be established at the beginning of 2015. The convention would be made up of those partners, along with their civil society support and would establish a social security partnership for Scotland—a new social contract. We drafted an outline contract in our report. An independent Scotland will inherit a patchwork of policies and approaches that have been built up over the past 70 or so years. We are confident that it is possible to establish something that better suits the needs of a small independent country. We heard evidence of a widespread will to build a new system that is fit for purpose and progressive.
We are in no doubt that this endeavour will take an enormous shared effort. It is clear that there is no easy solution. It will require our political representatives, people from across civil society, the business community and others to enter into a willing partnership with future Scottish Governments to create a social security system that we can trust and share in. We have set out a route map for that.
We have made nearly 40 recommendations. I will not go through them one by one but, among other things, we recommend the re-establishment of the link between benefit levels and the cost of living; the introduction of a new social security allowance for Scotland; the abolition of the bedroom tax, sanctions and the work capability assessment; an increase in the carers allowance to the same level as jobseekers allowance; and raising the national minimum wage to equal the living wage.
In the medium term, we must plan how we support those in our society who most need the support rather than react in an ad hoc manner. We were impressed with the evidence that a serious and sustained focus on pensioner benefits over the past two decades has significantly addressed pensioner poverty. A couple of weeks ago, I was at an event in Kirkcaldy at which Gordon Brown was in conversation with Sir Tom Devine. Tom asked Gordon what he was most proud of in his political career. Without hesitation, the reply was the reduction in pensioner poverty from over 30 per cent to less than 10 per cent. We recommend a similar sustained focus on benefits for people who are sick or disabled and who are unlikely to find a route to wellbeing through work.
Our final recommendations are for the longer term and relate to the search for simplicity. We set out two of the most coherent future propositions—a contribution-based system and a universal income-based system. At present, we could support neither, because of cost. The evidence to us was that the costs of introducing such systems are high, with basic income tax rates creeping towards 50 per cent. We consider the restoration of trust to be a prerequisite before any such level of taxation would have even a remote possibility of serious consideration by a credible political party.
Finally, I point out that our recommendations are not just for an independent Scotland. An editorial in The Herald on 5 June said:
“Whether independent or not, Scotland needs a welfare system that treats benefit claimants and those struggling to make ends meet with dignity and this report has some useful ideas for how that might be better achieved.”
Thank you very much, Mr Evans. That is a good overview of the report. I am sure that you have put a huge amount of effort into producing it. I will start with a couple of questions on not so much the remit but the basis on which you worked. Did you impose on yourself, or did you have imposed on you, any financial constraints on the overall package that you were looking at? Was a figure given to you for the public spend? Were you given any indication of the parameters within which you could come up with suggestions?
We were given none, although we worked out our own estimate of the cost of social security, which was £18 billion a year. A few months after we had worked out our estimate, the Department for Work and Pensions came up with its figure of £17.9 billion. We were delighted that our figure was in that ball park. We were asked to look at costs, but we were given no cost constraints by any party.
Given the basis for your ideas, will your suggestions lead to higher public spending in the short term and the long term? Can you give us an indication of the levels to which public spending might increase?
According to our figures, our analysis was that there would be no significant increase in public expenditure. The DWP figures showed a decline in the cost of administering benefits over a period of time. Our analysis was that in those areas in which there would be an increase in public expenditure, it would be offset by savings elsewhere. We tried to set that out in chapter 6 of our report.
We were not seeking any significant increase in public expenditure; we were seeking a far more effective system using our existing resources, including our policy resources, that helps people back into work, supports those who are on benefit and does not penalise them unnecessarily for their efforts to find work.
You referred to the efforts of the UK Government under Gordon Brown to address pensioner poverty. In making assessments of how pensioner poverty could be tackled, did you look at the impact of demographic changes and the cost implications for the pensions situation in a future Scotland?
We accepted our remit, which was to look at benefits for the working-age population only. We stuck to that remit, so we did not look at pensioner payments at all. We looked only at working-age benefits.
I will now pass over to other members of the committee.
I thank the witnesses for appearing before us today.
Mr Evans, you mentioned in your opening remarks that Scotland is a wealthy country with a well-educated population. In your report, you say:
“Scotland is in a positive position regarding affordability of its social security system.”
Could you and your colleagues set out what led you to that conclusion? What does that mean for our ability to implement changes such as the changes that you have set out?
The evidence was quite wide ranging. Our expenditure on social protection overall as a percentage of gross domestic product is lower than the level of expenditure in the UK and lower than that in a significant number of other OECD countries.
The taxes that are raised in Scotland pay for our system already—we are already paying for it; it just happens to be provided through a UK delivery mechanism. We raise the taxes to pay for the system, and expenditure on the system is not disproportionately high—in fact, it is lower than it is in the rest of the UK and it is lowish compared with other OECD countries. In other words, expenditure on the system is both affordable and sustainable. The issue is that no Government would want to carry on spending money on benefits if it could avoid that by getting people off benefits and into the tax regime. That would be an objective.
As I said, our analysis was that the system is entirely affordable. For us, the question was not, “Is it affordable?”, as we had settled that question; it was, “What political choices would an independent Scotland make about how it wanted to support the benefits system and invest in the future?”
Sure. I suppose that the issue that I am asking you to explore is whether, given that our system is more affordable, it is more feasible or easier to reform?
Do you mean easier than the current system?
Yes, indeed. You have suggested a number of changes. Given that you say that social security is more affordable here in Scotland, does that mean that we have more flexibility in implementing change?
If you have policy control, which I think is the issue that you are interested in, that allows you to pursue policy objectives that are consistent with other policy objectives that you wish to have in Scotland. Affordability is one issue. Having policy control allows you to bring other aspects of the welfare system into play. We set out a number of issues on which we think that that can happen.
I ask my colleagues whether they have additional points to make on that.
11:15
There are a number of issues. As Martyn Evans outlined, Scotland spends comparatively less on social protection. In the event of a yes vote, a choice would be made about what to do with that money and any additional resources. We have looked at the role of a convention in helping to set that policy.
It struck me from all our work at stages 1 and 2 and from the evidence—all of us attended different sessions—that there are a number of issues about how the current system operates, such as the level of bureaucracy. We talked about the role and impact of sanctions, which the committee recently looked at. We looked at how the administration operates and what it costs. There is also the opportunity to look at how devolved and reserved services might fit together more effectively. Carers and people with disabilities talked about the number of assessments that they must go through. There is scope to look at how things operate, how they can operate more efficiently and what could be gained from that.
A key issue for me is cost—I am interested in that because I am in business. Another key focus of the report is the relationship to work, which is important. It is about positive employment and working positively to get people into employment. In turn, that is beneficial to society and I hope that it would make the system ultimately less expensive and more affordable, while still being effective. That is a key principle that comes through from the report, which ties in well with meeting the costs that we are talking about.
The succinct answer to the question is in paragraph 6.3, which says:
“Short-term changes to the current system can readily be incorporated”
within the expenditure framework, which we have set out.
Lynn Williams alluded to our interim report on sanctions. I could not help but notice that the working group’s conclusions on the sanctions system were similar to ours.
Lynn Williams mentioned the national convention that the group suggests should be established in 2015. One thing that it would consider is your draft social security partnership. How would that partnership be an improvement on the current system?
I go back to Martyn Evans’s point about trust. From the perspective of those who are part of the system, and in general, trust in how the system operates has been lost, for a range of reasons. One reason for suggesting the partnership came from considering what we need to do to rebuild the commitment to social security in Scotland. The idea of bringing together people who are part of the system to shape the system is to rebuild the sense of a contract and social cohesion.
We would start with who collectively contributes to shaping policy in Scotland on the social security system and how we develop that. The report essentially provides a route map to that. It contains a draft partnership agreement or partnership approach and it talks about trust. The language and discourse that we want would change the tone of the debate about welfare and social security—we used the term “social security” rather than “welfare”.
The aim is to change the debate about why we need to invest in such an approach. The partnership is very much about rebuilding trust and giving people who have a say or a stake in the system a role in shaping the system.
When we went round speaking to small business owners and labour market economists, we were struck by the critical role that small businesses play in their communities in keeping people in employment when times are tough for those businesses and the employees. The longer someone is kept in employment, the more likely they are to come back into employment, even if they are in and out of sickness benefit, for example. The quicker someone is let go and the longer they are out of employment, the more likely they are to languish on benefits.
One key to the new idea of a social contract is to say that we are all in this together. That is part of the building blocks for a trusted social security system. We must not just say that benefits will sort everything out. Benefits are critical, but all our Ipsos MORI polling and all the focus groups that we held said that receiving benefits—cash—is a starting point. A whole range of other issues, such as dignity, trust and reliance, are critical to rebuilding the trust that we talk about.
I return to the positive message that we got from small businesses. If they could be encouraged to keep people in work, that would help the social security system. If they are open to that and can be supported in that, it helps us all. I want to emphasise that because it was so important for small businesses to be considered partners in that endeavour. That is why we put them in there with individuals, the state and business, and we were careful to say that around small business come all the civil society organisations. We must not forget the role of trade unions and campaign groups, because they help to oil that partnership. David Watt was involved in some of those meetings.
Absolutely, and Martyn Evans has made a key point. Perhaps there has not been enough business engagement in some of our discussions, at both national and local level. I spend my life defending businesses, because they are genuinely not setting out to put people into unemployment; it is quite the opposite. They are actually looking for well-trained employees across Scotland.
A key part of our suggestion is that a close link with skills development is important. As Martyn Evans said, it is not just a matter of money. We need close liaison on skills development so that we can train people for the workforce better and more competently, because well-trained people are more likely to gain employment and, importantly, to stay in employment. Quite a number of people tend to wander in and out of employment, and that relates very much to skill levels. As Professor Fothergill said earlier, it also relates to demand, which is patchy in some parts of Scotland, but if you are more skilled you are more likely to be employed.
We have the concept of distance from the labour market, which does not mean how far you must physically travel to get a job but how much you must develop before you are able to take up a job. We recognise that we invest disproportionately in those people who are quite close to the labour market or can get a job quite quickly. We suggest that we should invest more in those who are quite a long way from being able to get back into a job.
That is the social investment part of the issue. We were struck by the evidence from the Nordic models about investing for the future and bringing people who are a long way from the labour market closer to being employable, not by sanctioning them but by supporting them in finding a route through the steps that they need to take so that they can find a job.
You have heard evidence on job creation; our evidence is on systems for bringing people closer to the labour market. We think that you should relocate your investment to those who are furthest away, because those who are close will come back in with much less help from the state. If you are not careful, you will pay for the low-hanging fruit—those who are close to the labour market—and disinvest in those you really need to get back into work.
Your evidence mentions the introduction of a new social security allowance that combines benefits and talks about the bedroom tax being abolished, for which there is widespread support in the Scottish Parliament and to which the Scottish Government is committed. You also say, crucially, that housing benefit would not be included in that social security allowance. Why did you come to that conclusion?
We saw housing benefit as much more of a local benefit. It can be operated through local authorities, which are more sensitive to their own housing markets. Local authorities have to develop their own local housing strategies, and we thought that that was important too. We have also made comments about the private rented sector costing Scotland £0.5 billion a year in rent, and we want to make quite sure that there is some quid pro quo for that investment, so that if that money is paid out to private landlords they do not receive a windfall benefit from rising property prices.
There are also security of tenure issues. We held back a little bit from the stronger suggestions about security of tenure, because of the work of Douglas Robertson from the University of Stirling, who has evidence that a call to increase security of tenure is misunderstood by private rented sector tenants, who feel that they have to stay for that period of time. We want more work to be done on that issue. That is why we want housing to be a local matter, and we think that the more locally housing is looked at and delivered, the better.
Universal credit is not in place yet, but were you also informed by concerns that wrapping up housing benefit in universal credit would make matters more difficult, and that direct payments would lead to people building up arrears? Did that feature in your rationale?
Yes, all those things were part of it. It is about fairness and personalisation, and we wanted to get back to the idea of trying to help people choose the best way for them to receive their benefit. I have been around long enough to remember when housing benefit was taken from individual tenants and given to landlords, and the proposal now is that it goes back to the tenant.
To us, personalisation means letting people choose, from a reasonable series of choices, how to receive their benefit in a way that best suits them. We also listen closely to what the SFHA and others say about how those payments are made. Clearly, we do not have evidence about the future of universal credit, but we have a lot of concern about the one-size-fits-all approach—the period over which you receive your benefit is monthly, the mechanism by which you apply for it is through computers, and so on. With regard to all those things, we are saying that the Government must step back a bit. In order to make things personal and fair, you need more flexibility in the system. I think that flexibility is possible, and I have spoken informally to those who deliver the system, who think that it is possible, too. I do not underestimate the complexity involved, so we have parked to one side the simplicity objective, which we hold dear. We understand that, at this stage, we cannot have simplicity as well as personalisation.
Personalisation is also reflected in the assessment issue, with regard to the social security allowance. On assessment, you say:
“We recommend that early identification and agreement of an individual’s needs and goals should be the starting point.”
You also recommend that the work capability assessment be scrapped, and you outline
“a series of new features of the assessment process which should take its place.”
Why have you come to that conclusion?
That is something that is close to my heart. It is based on a lot of the evidence that we received about the impact of the WCA, which I know that the committee has considered.
The WCA does not look at a whole person, taking into account their abilities and the context in which they live. That goes back to my career as a careers adviser. The starting point is that, in order to help someone to achieve their goals, you have to better understand what those goals are, what their abilities are and what limits they have with regard to achieving those goals. Although we did not stress what the system might look like, we know what the principles are around it. What does a person want to achieve? It is not about square peg and round hole. Part of the reason why people cycle in and out of unemployment is that they are not given a chance to develop their skills and abilities. They are told, “Here is the job that you will take.” It is a work-first approach. The evidence that we heard—from academics in particular, but also from others—was that that does not work. It is about how we get people to where they want to be in the longer term.
The processes around, for example, people with disabilities include an assessment of the range of barriers that prevent them from working—it is not just to do with work; it is to do with physical barriers, social barriers and so on. Similarly, we would consider how someone with care responsibilities balances those responsibilities with paid work. The element of assessment and support must start from the basis of the person’s goals, within the context of how the labour market operates.
Policy learning from the Nordic model is quite challenging to some of the pressure groups in Scotland. If you are to build trust in a system, you have to address the question of the rules that you have to apply in order for someone to receive benefit—the activation rules, the conditionality rules and so on. What those should be should be part of the discussion in the national convention.
We were struck by the fact that the high levels of trust in the Nordic systems relied on each of the parties taking a very clear role. Part of that involves fair assessment—that is critical—and personalisation. Another part of it is that a job cannot be the first option. Some people are a long way from the labour market and they need supported into volunteering and other forms of activity, but without the harsh current system of sanction. It seems like quite a binary approach. We were struck by the progressive conversation that has taken place. If you are to build trust in the system, what rules should each of the parties apply to themselves and to others?
People sometimes re-frame that as trust on the part of the people who are in receipt of benefit. That is important, as we say, but equally important is the issue of the trust of wider society in the benefit system. Only when those two elements are aligned can you have the best possible outcome.
Almost every day, I talk to people who believe that they have been told that Scottish independence will lead to an instantaneous multi-billion-pound step change in the redistribution of wealth through taxation and benefits. That is not what you are talking about, is it?
11:30
Our starting point was what would happen if the people of Scotland voted for independence—we did not make a comment about that. Our proposal is that within the envelope—not the envelope that we are set but the envelope that we choose to operate—it is possible to rethink the welfare system and have a more progressive one. That is within the envelope that we set ourselves, which is the current £18 billion system. We say that that is affordable because the taxes that are raised in Scotland pay for that system. I hope that that answers your question.
So what we are talking about is in effect a proposal—a different proposal certainly—for radical welfare reform. Would that be a fair description of it?
We would describe it as a rethinking of welfare. The money is important, but all the things that surround it—respect, dignity, trust—are also important. They are not peripheral to the issue; they are central to how you deal with welfare. You drive wellbeing through a welfare policy that recognises those things. The evidence that was given to us was that people do not trust the system. Rightly or wrongly, those in receipt of benefit and in wider society have a degree of distrust in the system. Our line was “rethink welfare”. That was the strapline that we used, within the three principles, “fair”, “personal” and “simple”.
You would not be the first people to propose a set of principles to reform the welfare system radically. We are going through one set of proposals at the moment, and it has not been easy. Timescales in particular have been difficult. How do you see your proposals being affected by timescales? What timescale do you envisage for your proposals; when will they begin to deliver; and how long will it take to complete the process?
Our line is this: you have to start almost immediately—the Scottish Government responded to our report—and then, in 2015, you have to set up a partnership agreement to discuss everything that we are talking about.
Our first report talked about a transition. The Scottish Government has set a two-year period for the transition from independence to a new system. We keep coming back to the point that this is an enormous effort—let us not underestimate that. It is a shared effort, and it can be successful only if all the parties that we are talking about are in there. We did not set out a timescale for this; we just specified “within five years” for the short term. We said that it should be possible, within five years, for all that we are suggesting for the short term to be agreed.
How long do you envisage the transition taking between the existing system—perhaps not as it is today but as it may be when the transition takes place—and the system that you propose? Will it not begin until 2018? Will it take five years or more to complete the transition?
Our first report set out a transition timetable, which the Scottish Government cut to two years—we set a slightly longer one. The Scottish Government’s commitment was that within two years of independence there will be a new system—that is what I recall its position to be. Our own position is that it is for the parties to decide the transition timetable. It was important to us to protect the claimant interest for that period. We kept on saying, “Concentrate on the claimant interest and maintain the benefit level to make sure that it is effective.” The Scottish Government has made a commitment to do it in two years. Have I remembered that rightly?
Yes.
To pick up on Martyn Evans’s point, there are choices that will be made that are not in our gift to make. The rough timelines that we set out in the report were around five years initially for the short-term goals and five to 10 years for others. In the evidence that we gave last year, we talked about almost a twin-track approach. From my perspective, it is clear from the evidence that we received that some of the damage that has been done has to be rectified in some way. Within the first couple of years, some of the immediate issues that we have discussed, such as an increase in the carers allowance—which, despite carers’ contribution, is the lowest income replacement benefit of all the benefits—and how the work capability assessment operates, need to be tackled immediately, because a lot of damage has been done.
The other issue is that there will be an election in 2016, which in itself will affect the whole environment around this discussion. Obviously, circumstances change. If Scotland becomes stronger financially and economically, maybe things can speed up. We do not know. There are a lot of things that we cannot look into the future and see.
We have provided a strong route map and a direction of travel—some people might say that that work is radical, and others might not. We have tried to change the whole discourse. Certainly, the message that I got from third sector colleagues at the very beginning of the process was, “If you change the discourse, you will have achieved a hell of a lot.” From our perspective, that was part of the reason for the process.
There are factors that are outwith our control that would determine the timescales that you identify.
The last time you were before the committee, we glossed over issues such as tax credits, as we assumed that tax credits would be history and that the universal credit would be in place before any change started. Is that still your assumption?
It is very difficult for me to make assumptions that are not in our report, in which we tried to set the short-term objectives that we said should be achieved, followed by medium-term and long-term objectives. The details of how the transition would be achieved are a matter for the parties.
We discussed the fact that tax credits seemed to have morphed into a mechanism by which low-paid employment was subsidised. We were very concerned that if we were to tackle in Scotland the route out of poverty through work, we would have to address the purpose of tax credits and whether they could be better applied. That was our question. We did not say, “Do this.”
The question is about how complicated the transition would be. We say that it is possible. Although the report says that it
“will take an enormous shared effort”,
we think that we have the human resources to do it, with 10,000 people in the civil service, the policy direction that the Scottish Parliament would provide and the willing partnership that should be brought to the matter. We say that the financial resources exist to do it.
As the committee knows well from considering the welfare reforms that were discussed under the previous agenda item, this is a complex business, but our judgment is that it is possible to have a progressive welfare system in Scotland. We know that because we looked at other small countries. We think that such a system is affordable and that the will exists to achieve it. That was our conclusion from the evidence that we took. We did not just sit in a room; we went out and spoke to a whole range of parties. It was important that we spoke to the key people in business and communities. I do not know how the people of Scotland will vote in September, but we were asked to assume that they would vote in a particular way. If they did so, the assumption was that people from all parts of Scottish civil and political society would work hard to make things work.
If we are making the rough assumption that things will be done on a revenue-neutral basis and that money will be spent in different ways, what are the likely costs of transition? Specifically, does a fast transition have a greater cost than a slow one? Is there the opportunity for the Scottish Government to work in conjunction with the UK Government for a significant period of time and to share the costs and the transition process, or are we looking at something that will simply not cost us anything, regardless of how we do it?
As we all know, there has been a lot of debate about the transition, especially in the report that was published yesterday. The interesting thing is the shared interest of the UK Government and the Scottish Government in a smooth transition for the benefit of not only recipients in Scotland, but for people in London and elsewhere, given that a significant number of benefits are delivered by Scotland for those people. A smooth transition is therefore in the interests of both Governments.
No pre-negotiation is taking place, which is why we could not discuss any of the details with the DWP. However, if it is in the interests of both parties to have a sensible discussion, the smoothness of the transition would be something for them to achieve. We think that that is entirely possible—we keep coming back to that.
The financial constraints are as we set them out. They are an envelope that can be dealt with. The human resources exist. All the people we spoke to did not say no; they said, “We cannot say this publicly, but if that happened, yes.” My opening remarks were always, “In the event of the people of Scotland saying yes to independence, what would be your contribution to building an independent social security system?” I would come across resistance in the form of a question about whether the people of Scotland would or would not vote yes. I just had to let that ride and say, “Come back to the question. That is not the issue. Let’s assume they said yes. What would your contribution be?”
I was very impressed by a whole range of people. This might get them into trouble, but I think that some of the DWP people whom I met informally would apply a progressive and supportive view. I cannot guarantee that, but that was the impression that I got from speaking to people privately.
I will pick up on your last point. First, it is a big premise to say that the report is based on independence, because that is a big if. However, putting that to one side, I welcome a lot of the work that has been done, particularly your emphasis on rebuilding trust, your focus on work and so on. We can all agree on those things. However, there are some difficult issues, as there always are with welfare. Cost is at the heart of this. Did you look at the transition costs? How much would it cost to introduce the system? What are the additional costs?
I thought that I had tried to answer that question.
You have not put a figure on it.
I will try again. Paragraph 6.3 of the report states:
“Short-term changes to the current system can readily be incorporated.”
We thought that, as has been indicated, the transition costs from one system to another are a matter of how the parties negotiate.
Let us assume willingness. Can you put a figure on it?
The current cost of administration is £0.5 billion in Scotland—it is currently £0.7 billion, but it will reduce to £0.5 billion, so it is quite high. We think that, within that envelope, the transition costs could reasonably be managed.
And there will be no additional transition costs?
There will be some, but we believe that there will also be some significant savings.
What savings?
Over the transitional period, there will be some savings because people will be better helped into work and the system will operate better.
Immediately?
Yes—I would hope so, over the transition period. I think that the Government is saying that there will be a two-year transition.
One very simple but fundamental example is a closer working relationship to the point of—I hope, ultimately—merger between Jobcentre Plus and Skills Development Scotland. That would be a massive improvement, as it would mean that there was a one-stop shop for the individual. That would also be a saving. Such closer working would help the individual and save money in the short and long term. It would not initially cost anything, so we could move towards that system. There are opportunities within that framework to make pretty instant savings—even, to be blunt, in terms of properties. It is not beyond the wit of man to make such a relationship work pretty effectively pretty quickly. Co-operation is important.
That is right and I am not saying that it is not; I am just trying to get to the essence of whether there are costs, but you think that there are no additional costs. For example, one of the first things that you would do is to have a different inflation rates for people in Scotland and people in the rest of the country, but there will just be one system. Will the system be able to cope with that? Is that not an additional cost?
That would have to be part of the negotiations. I come back to our first report. We would have to look at how the system would manage to do what you describe, but it is doable. For example, we discussed the changes in Northern Ireland at our previous evidence session. Nevertheless, there is a valid point about how the negotiation pans out and what kind of agreement is in place. Would the DWP take account of the changes? The transition period is probably the opportunity to deal with that.
A wider issue is that we have identified the cost of the benefits system based on reasonable and quite robust estimates, but a wider envelope of different resources would immediately come into play. David Watt mentioned how we address employability and there is the work programme. Labour’s devolution commission recommended devolution of the work programme—I think that the cost of that is roughly £100 million.
There is a range of other policies, for example employment law when it comes to how people balance work and care and so on. A wider range of issues needs to be considered, rather than looking at cost in a narrow sense. It is about what you do with that total package. We can obviously give a steer—and we have done—about what you can do with some of that package, but wider decisions have to be made. We cannot gaze into a crystal ball and say what will happen, but we can provide a direction of travel. To consistently focus on cost misses the opportunities that there could be.
It is not about consistently focusing on cost. It is just a question that most people will ask, that is all.
Fair point.
11:45
It is a reasonable question, Mr Macintosh. You said that there would be no additional cost, but we are saying—
No, Mr Evans, you said that there would be no additional cost. I did not say that.
What I meant to say was that there would be no net additional costs. Of course some costs on the balance sheet would go up and some would go down. Our point is that within a £700 million system—that is what it costs to administer the system in Scotland, and we should remember that the system is already paid for by the people of Scotland—there would be some additional costs, and we think that there would be offset savings and efficiencies. As we said in paragraph 6.3,
“Short-term changes to the current system can readily be incorporated.”
It would be misleading of me to say that there would be no additional costs, but we calculate that there would be no net additional costs.
Am I right in thinking that the system of benefit entitlement that you are describing, which we might describe as marginally more generous than the current system, would lead to a higher total bill?
It depends on what we compare it with. If we make a like-for-like comparison with the status quo and a situation in which there is no net increase in the UK, there is a difference. If benefits in the rest of the UK go up by only 1 per cent and benefits in Scotland go up by the CPI rate of inflation, the total bill will be higher.
The UK Government is committed to returning to the CPI to uprate benefits from 2015-16, so if it kept to that commitment, a like-for-like comparison would show no difference. If it did not keep to that commitment, Scotland’s benefits would rise to a higher level than benefits in the rest of the United Kingdom.
And if it keeps to that statement, the benefits system will be the same.
I am sorry?
If the Government keeps to its commitment, the benefits will not change.
Not in 2015, no, but the UK Government’s commitment to a 1 per cent rise stops in 2015-16 and we are suggesting that the Scottish Government should uprate benefits by the CPI. I think that that has been accepted.
So there will be additional costs then.
You want to restore trust, which is important. You said that you would get rid of sanctions and replace them with “positive conditionality”. What does that mean, exactly?
Lynn Williams was strong on that. We all struggle with the issue. Could we have a system in which people receive benefits without condition, so people could receive benefits and work or go abroad and so on? No. There is clearly some level at which society must impose conditions on the receipt of benefit. The question is therefore what conditions are imposed and what happens to someone who does not comply with them.
Our analysis was that the current system of sanctions is deplorable in its impact on individuals and is not achieving the objective that was set for it. That does not mean to say that there should be no conditionality—that would have been a weak response from us. We spent a long time talking about the issue, which is critical and is not easy. I challenge people in the third sector, for example, to tell us what they would do. If the answer is nothing, we further undermine the general public’s trust in the system.
Our view is that the social contract is critical. When someone contracts in, what is their commitment to receiving the benefit? What do they do? We took a lot of evidence from the Nordic countries, where the view is far more ingrained in the system that people must engage and give something back.
I hope that we took a reasonable line. We would put it to the 2015 wider-society group to work out, because different points of view have to be argued through and, at the end of the day, we must come to an agreement whereby everyone says, “It is not acceptable for the state to do this to a person and it is not acceptable for a person who is in receipt of benefits to do that.”
It is a hard, hard question, and I do not want to duck it. Lynn Williams was involved in a lot of discussions with me, and I think that we reached a place at which we set out a draft social contract, which is for the people of Scotland to decide on, through their representation. Currently the social contract is broken and the system is far too harsh, in many people’s experience. The system is driving people into a place where I—and most of the people to whom we spoke—do not think that it should drive people.
I do not have much to add. Martyn Evans has provided a good summary of our discussions. The topic is incredibly difficult, and I think that we reflected that in the report. There is a range of views about whether sanctions should play a part in the system.
Martyn Evans mentioned the Nordic model. On the group, we had the expertise of our colleague Jon Kvist from Denmark. Conditionality is a strong part of some systems in the Nordic countries. However, the other side to that is that a lot of support is in place and there are active labour market policies. Because people are supported back into work as quickly as possible, there is not really an issue with meeting the criteria. In many cases, people get better work or the right kind of work.
I have my views on the sanctions regime. The evidence is that it is moving people further away from the labour market. If the first thing on someone’s mind is how they feed their family, the last thing on their mind will be how they get to the jobcentre. There are issues with how the system works.
Martyn Evans talked about rebuilding trust. With a convention, there would be scope for a range of views to come into play on the role of conditionality, which would probably reflect the views and discussions in our group. It must be a positive model of conditionality that involves providing support and helping people to get back into work at the right time and a time that suits them. More widely, we must consider the value that we place on contributions that are not paid work, such as unpaid caring or volunteering. In the current system, volunteering often makes people’s lives a heck of a lot more difficult although, for many people, it is a route back into work. The other side of that is how we support people back into work. We have suggested looking at models such as community jobs Scotland, which is not a work-first approach but is about getting people into paid work.
It is right to raise narrow concerns about sanctions, but there is a wider debate to be had on that. For me, the issue is much wider—it is about what the whole support system looks like and what part conditionality plays in it.
Some of the most powerful evidence that we had was some of the powerful evidence that the committee has taken in hearing about the experience of people on benefits, particularly those who in technical terms we call distanced from the labour market. I had a lot of meetings with bodies such as church groups. There is a strong desire to work. Somebody said, “We are all a little bit broken, and we need more support to get to a place where we can take advantage of some of the measures.” The question is how to do that in a personal way—that is why we talk about personalisation—and in a way that is fair for the claimant or recipient and to wider society.
I do not doubt that it is a vast undertaking to reimagine and rethink the welfare system for an independent Scotland. Ken Macintosh began by saying that we might disagree on the starting point. I assure him that we took our remit to be to consider what would be the next steps if the people of Scotland voted for independence. All our experience shows that some people deserve a great deal more empathy and support but, to get that empathy and support, there must be an explicit social contract.
The Nordic model is quite tough in that regard. It is embedded in the system that, if people receive benefits, there are certain expectations. That means that those who pay a high level of taxation to provide the benefits have trust in the system. There is a virtuous circle and people can therefore be dealt with better. That was a policy learning. Believe me, if I could have just suggested transferring the Nordic model to Scotland, that would have saved me months of work, but that is absolutely not possible. Anybody who says that it is possible has not examined the details of culture, geography and society in those countries, which are entirely different from our own. We have to find a Scottish solution, which will take an enormous amount of effort.
I have two points from an employer’s point of view. Employers, and society in general, will look for fairness and robustness in the system so that it does not give something for nothing, if you like. That is important, and conditionality is a key part of it. As I said, we also need positivity in the system. Even employers would admit that the current system is not positive in that it does not get people to where they need to be to get a job. That is important. Conditionality and positivity are two terms that are relevant to employers and industry. They are about really doing something to help the individuals we are talking about, as well as taking an individual approach.
I have two more points on that. To go back to the issue of cost, which has come up frequently, I will read a quote from evidence that we received, which reflects a number of pieces of evidence. It states:
“The development of conditionality and sanctions, the declaration that people are ‘fit for work’ and the Work Programme have greatly added to the complexity, administrative cost of the benefits system.”
People are being cycled within the system—they appeal, reappeal and then appeal again, or they do not appeal, because they do not know how to. That has knock-on costs, for example for the third sector. There are cost issues in considering what the conditionality system looks like.
Secondly, a strong part of our work was the work that Ipsos MORI did with groups that traditionally would not take part in this debate. It was interesting that they had nuanced views on issues to do with how the system operates and conditionality. They thought that the system focuses far too much on issues such as how much money people get and how they meet the criteria, whereas it should be more about support. There are issues with some of the attitudes that we think exist in the system. Conditionality and sanctions can themselves add costs to the system.
I think that—
You can have one more question. We are starting to get pushed for time; you may ask a quick question.
It is my last question. This is a very similar point to one that arose in our own report on sanctions. In some ways, you are criticising the punitive nature of sanctions. The sanctions themselves will continue to exist under your report. People will continue to lose their benefit if they break the conditions. That is the key thing.
We left it open for the convention to consider that. There are certainly strong views that that should not be the case; others will say that it should be the case. It is for a convention to work that out with regard to partnership.
The important point is that the language that is used is critical. If you say that sanctions will continue, there is a whole range of assumptions about things that will continue with them. We are trying to find a new language to talk about the issue in a much more positive way. A cynic would say that it would be sanctions by another name, but we are saying that work activation is critical, and that conditionality is critical for trust. If we said that there is nothing that would lead to people having their benefit withdrawn and that people who defraud the system, or who work, will still get their benefit, most people would say no to that. If we start at that point, at what point does there need to be responsibility in order to receive benefit?
As Lynn Williams has been saying, that discussion is required to base a social contract on. That is the point at which Scottish society in 2015 has to settle the matter as best it can through the convention. It will not be an easy settlement, and it must have some hard edges. Otherwise, the trust in the system will erode. There could be a system that some progressive people like but which people will not pay their taxes to support. That is the hard reality of it, in my opinion.
I thought that I was agreeing with you there—but there we are. It is about the use of language.
Can I just have one final question?
No, I do not think so, Ken. I said that that would be your last question. We are really up against the clock.
That was not a question; it was just—
Well, you did have it. I will move on to Kevin Stewart.
Our report said that there is a need for conditionality but that the sanctions regime as it is should be abolished. Mr Macintosh signed up to that. Is that basically what you guys are saying in your report?
Yes. We read your material with great interest, and we were of course strongly influenced by it. It seemed to us that we would have the same length of time. That seems an eminently sensible approach to take.
We then went a step further to ask how to implement such an approach, and using what route map. We were suggesting that that is not for the policy people in the Government to do entirely. They are players in that, but it is a matter of bringing them together with other parties to agree the regime broadly.
You said that you could not import the Nordic model here. However, certain aspects seem to work well in other countries, in particular Denmark, where the joining up of the social security system, healthcare and the social care system leads to a much more holistic approach in getting things right for disabled people and their carers. Would you guys like to see integration like that? Do you think that that would provide not only better support for folks but opportunities for cost saving?
Absolutely. Lynn Williams and David Watt might wish to speak about this. The opportunity to join things up is critical. One part does not always work in tandem with the other part. When there are reserved and devolved matters, they can work against each other. The advantage of integration is that the investment that is made in an integrated system is recouped and goes back into the system, so social investment and preventive spend can be justified—they cannot always be justified if the two systems are separated under a current accounting system.
We felt that the institutions were not always well joined up. There are all sorts of opportunities for those things to work better together. We make that point clearly both in the summary—it is a critical point—and, in more detail, in the report.
Absolutely. I think that the short answer to that is yes.
For me, from the very beginning and certainly when we attended some of the consultation sessions with unpaid carers, I was particularly struck, as an unpaid carer, not only by the disconnects within the devolved services but—let us be fair—by how devolved services and reserved services clash.
12:00For example, carers have to give up work because there are issues around social care. Therefore, there is a loss of tax revenue and people become dependent on benefits, although they do not want to be. There are opportunities to bring the services together. We suggest in the report that this is a chance to review services, to look across the board at what resources we would have if Scotland was an independent country and to ask, what are we doing just now that works relatively well and what does not?
We cover various issues in the report. We look at how childcare operates and we make some critiques of some of the commitments that have been made already. How do the systems operate together? Where are the clashes and the tensions? One of the consistent messages that we got again and again was about the number of assessments that people have to go through—blue badge assessments, community care assessments, benefits assessments, work capability assessments and educational support needs assessments. For some people, their situation will not change. For children with really complex needs, their situation will not change. Their life is the way that it is. There is a focus on a medical approach rather than looking at the person in the round.
There is definitely a chance to look at how those things can operate more effectively so that people who want to work can work. There are tough questions that we have to ask ourselves about how services currently operate and about whether they are achieving the goals that they are meant to achieve. Certainly, the view of some people we spoke to was that no, they are not. There are issues around those tensions.
If there is a yes vote, what do we do with childcare and social care—do we know how to make those things operate more effectively? How do they connect with each other? How do we streamline assessment processes and so on? I think that there are great opportunities there.
It seems that in many places, folks have one point of contact and there is a one-stop-shop scenario. Is that the kind of thing that you would like to see?
We talked about that a lot as a group. One example was of a child with a diagnosis of autism, where the carer is dealing with a particular professional in the system. The carer asked why they cannot just press one button that says, “You are eligible for benefits.” It is about achieving that kind of simplicity rather than having to deal with 5 million different professionals. In one family’s case, they had to deal with 24 different professionals. How do we make that process as simple as possible? How do we reduce that bureaucracy, which would, in itself, save money in the system somewhere along the way?
I will stick with the holistic approach. I attended an event on Friday at the Stuart resource centre in Aberdeen, which is run by the Multiple Sclerosis Society. I am always struck by the fact that folks want to carry on working for as long as they possibly can. We have to give them a certain amount of independence in terms of payments in order to allow them to do that.
We talked earlier about the role of small businesses. Sometimes folks who have small businesses find it very difficult to cope with a person being off sporadically with no warning. How can we bring everything together to ensure that we can keep folks in work for as long as they want to be in work in such circumstances, and at the same time support the business community to allow it to continue to employ them?
That very much falls under the point that Lynn Williams just made about things not being joined up. Most of the 24 professionals whom Lynn mentioned will never speak to an individual’s employer: there is no connection. I often say that there are only 5 million of us, so let us speak to each other and do things together. Almost regardless of constitutional change, we should be working together for the benefit of the individual; that does not happen.
Most employers are not well engaged and Mr Stewart is absolutely spot on to say that small employers have very limited resources. They do not have HR people, and they are put off or almost scared by people having disabilities because they do not quite know how to handle that—they do not have the appropriate expertise or knowledge. Larger businesses can take such things in their stride and can spend money on preparation, facilities, accessibility and training. That is tough for small employers, so we need to make more support available.
We need to work more with third sector specialists in areas such as multiple sclerosis, which Kevin Stewart just mentioned, and we need to create more awareness of what is going on. That is a big challenge.
We need a joined-up approach and we should talk to employers earlier. Employers would, to be honest, be more sympathetic to the system if they saw the system working positively to help people into employment, which does not happen. Indeed, it is even suggested that the private sector should be represented on the national social security convention. The private sector probably has not engaged with the system for a long time, except as a recipient—or, I might say, as a sufferer. The first thing that is needed is engagement.
In order to get respect, dignity and trust into the system—which seem to be out the window at the moment—and to get to where we want to be, we need to create a joined-up approach that includes not only public sector bodies, but private sector bodies.
David Watt and I have discussed the role of employers quite a lot. I can balance what I do as a carer with my work only because I have an understanding employer who is flexible around my needs. That means that they do not have to recruit someone new—there would be a cost to the business if it lost someone whom I hope is a valued employee.
There are opportunities around employment law, for example—we could do a lot more around existing employment rights. Employers are critical: they are part of the welfare system in a lot of different ways to do with occupational welfare and so on. They absolutely have to be part of the partnership approach.
If you see private sector employers as the problem, we will never get to where we want to be. They are part of the solution, although they are not the entire solution. I can be very positive about that because I have spent a lot of time with small employers, particularly in the towns. They know who works for them, they know their communities and are engaged with them. There is willingness to help and there is a natural civil capital.
Those employers care.
They do care. That is not easy to say in some of these discussions, but we have to say it openly, because it draws in private sector employers and allows them to see the state not just as just a cash cow that gives them money; they see reciprocity. They have something serious to offer their local communities and economies.
That is why we say bring them in—David Watt was an important influence on us in that regard—and allow the civil society support organisations to help. By their nature, small businesses are very ill-equipped to get time off to go to conventions. Civil society support organisations, business associations, trade unions and the voluntary sector must all support private sector employers.
We were very clear that the private sector is as much a part of the solution in a modern welfare system as the state is. It is an area in which improvement is necessary, but that alone is not sufficient. I was very struck when I spoke to private sector employers by their willingness to be engaged. I think that David Watt would agree with that.
I very much agree.
My question is on the work capability assessment and the current sanctions system. At the start of the session Martyn Evans read out a quotation from The Herald editorial of 5 June, which said:
“Whether independent or not, Scotland needs a welfare system that treats benefit claimants and those struggling to make ends meet with dignity”
and so on. Paragraph 31’s recommendation is to scrap the work capability assessment. It is only with independence that Scotland will be able to do that; that is not on offer from anybody else. We need to scrap the WCA and we need independence to do that.
Paragraph 3.4 of chapter 3, on page 27, starts:
“What is clear is that independence provides Scotland with the opportunity to design a social security system afresh.”
I contend that part of that would be getting rid—quite rightly—of the WCA as it currently exists in the sanctions system. Independence is required to do that. I wanted to make that point. As much as The Herald’s editorial was interesting, it lacked a certain factual link.
My substantive question is on an issue that we have not discussed yet. Paragraph 30 contains the important recommendation that,
“subject to certain conditions being met, the National Minimum Wage should begin to rise (in phased amounts) to equal the Living Wage. A clear timetable for full adoption should be set out by the first Government of an independent Scotland. We recommend the payment of Employers’ National Insurance should reduce to help businesses make this transition.”
The Scottish Government’s response is that it is looking closely at that. It would be rather odd if we did not spend a wee bit of time discussing the thinking behind that recommendation.
Our thinking behind the recommendation was that if we are to encourage people into work, it must be good work and it must be reasonably well rewarded. We had evidence that if the minimum wage had been uprated according to inflation, it would currently stand at £7 an hour. Given that the living wage is currently £7.65 an hour, the gap does not seem to us to be big, and it does not seem to be a big leap to say, “Let’s be ambitious and move much more towards the living wage.” That is our reasoning.
Internally, we had a number of economists on our group and among our advisers, and they were worried—quite rightly—about behavioural consequences and affordability, so we put in the caveat that the change should be made overtime, in phases and as conditions allow.
We were very struck by the Low Pay Commission’s report that a significant proportion—I think that it is 20 or 25 per cent—of current employers can afford to pay the living wage; quite an extraordinary number can afford it. Would the move be to require it by regulation or to encourage it? Our line was that, given that there is a growing economy, we owe it to people to redistribute some wealth, because of all the evidence that we had about people who are not just starting their careers but are mid-career and are bringing up families on a minimum wage of £6.31 an hour.
The quid pro quo of our emphasising work was to say that we cannot just open up the labour market as it is and that we have to have some sort of Government intervention in the labour market. I welcome the emphasis on the recommendation, because it is an important one. We talked a lot about it, and about the process.
Thank you. It would also be helpful for the committee to get a bit more of the background to the recommendation that there be a reduction in employers’ national insurance contributions.
Certainly. The conversation that we had focused on the fact that it would be particularly difficult for microbusinesses to move from the minimum wage to the living wage. We had to open up the possibilities of what the state or the Government would do to assist with that, so we looked at the possibility of all businesses—not just small businesses—getting £10,000 a year off their national insurance bill in order to help with that. That £10,000 a year would be inconsequential to, for example, Tesco, but it could make all the difference to a very small business. We looked at the costings, and we felt that there would be a net gain to the exchequer in an independent Scotland.
With all those issues, we thought that the partnership should involve increased distribution of the benefits of working to a wider set of society—£7.65 an hour does not seem to us to be an unreasonable figure—over a period. We recognised that microbusinesses and small businesses would find that difficult, as David Watt advised, so we included the costed national insurance proposal. I do not know whether David wants to say anything else about that.
Martyn Evans has summarised things very well. The living wage is a significant issue for businesses, and that is why we need a progressive movement in that direction. I do not think that any business is setting out to pay people poorly—that is not what they do. They pay wages that are affordable, and ultimately the customer, or we as the public and the consumer of the service or product, pay for that. There is also a clear link to how much the state takes out of people’s wages, and that is where national insurance is an issue. It will be a challenge for an incoming Scottish Government to examine the whole package and how it is done, but I think that our recommendation represents sensible support, particularly for smaller employers, who are definitely challenged, as Martyn Evans said.
12:15
If you encourage people to move voluntarily to paying the living wage, you would give a competitive advantage, possibly on price and access, to those who pay only the minimum wage. Therefore, there had to be a discussion about which is better. If there had been a very wide gap between the two wages, it would have been impossible to require a move by statute to the living wage. However, because they are so close in real terms, the matter struck us both as a symbol of where Parliament wants to go and as a practical example of the real employment issues in Scotland. That is about having competitive industries, ensuring that productivity is not affected and competition between businesses is not inhibited. That is our thinking.
I will add to that. The fundamental points to which I keep returning are about the relationship between skills and unemployment and the relationship between skills and wage levels. If we can upskill our workforce from the bottom up, if you like, that would give people more capacity to earn more money. We are not concentrating on that. Arguably, we are not focusing enough on upskilling the people about whom we are talking.
This is like all the other debates that we have had in this session. We are talking about the need for a holistic linkage between devolved and reserved powers. I argue that without being able to make a daily linkage with every policy we are rather hamstrung and must operate with our hands tied behind our back.
On the living wage, the point about the minimum wage not having kept up with inflation is very relevant to the debate. We must look at the cost to society as a whole of not doing that and other things that are raised in the very comprehensive report, if the impact on deprived communities is to increase as we heard it described earlier. Indeed, the cost to society as a whole of not getting to grips with the problem would merit a study in itself.
I thank the witnesses for their evidence. I will not detain the committee any longer.
I want to stick to the joining-up theme. I also want to talk about employers because we never acknowledge enough the benefits of small and medium-sized enterprises to the cohesion and wellbeing of communities.
The report talks about maintaining benefits into employment for a period. I assume that that is a reference to the unemployment trap and helping with that. We also know that there are very often incentives for employers to take on young people and apprentices, for example. However, if we are talking about joining up things—I think that this applies to sole traders and self-employed people, as well as to small and medium-sized enterprises—I find anecdotally in my constituency that there is a real disconnect between the benefits system and employment law, for example, and how employers can act. I very often come across employers who are having to pay people off and who say that if they could talk to the benefits office and arrange to get help for a few weeks, the person would still have a job in a month because the employer is just going through a really difficult patch.
I have heard about people giving up being self-employed because there is not a connection that allows them to live day to day. Did you consider not just employers and employment initiatives, but employers’ ability to keep people working and employed once they are in the job, if the employer hits a hard time?
The labour market specialist who gave evidence was absolutely right. A critical role of employment is to retain people who may not be well at a particular time or who are having difficulties with some connection with the labour market. That may be done through their working part-time or having some time off before returning to work. That approach is not unusual in a range of industries, but it is unusual in small businesses because, as David Watt said, they are not well resourced in terms of human resources expertise and they do not understand the complex benefits system.
In my foreword, I say:
“Independence will provide an opportunity to remove a series of ‘disconnects’ between parts of the system which are currently reserved and those that are devolved.”
That gets to the heart of some of our discussions. We could not go through all the details with you, but everyone to whom we speak said that things could be better integrated.
Part of the strong view that I hold is about the evidence on older men and older women being absent from the labour force. Less than half of women over 55 here are in employment, compared with 70 per cent in other parts of Europe, which is an extraordinary figure. Those women not being active in the labour market is a massive drag on our economy. Why is that the case? I do not know; I am not a labour force expert, but I know that women in that age group have a huge range of skills, including interpersonal skills and life experience, to bring to the labour market. We need to find out why those women are not working and we need to bring employers into the discussion, so that we can perhaps do something different.
You heard evidence earlier about where poverty is concentrated. Poverty is often concentrated in older industrial areas, where older men in particular have come through deindustrialisation and have not found employment. We have to look at that. It is beyond our remit, but we were quite clear that the opportunities for employment are about not being passive; the Government has a role to play, particularly with older men and older women, as do employers. If we are not careful, we will confine the issue to the private sector.
Lynn Williams’s sector is huge; these days, the third sector includes multi-billion-pound organisations that employ thousands of people in Scotland. The demands about the living wage and about employability should apply to those organisations, which are highly differentiated, so it is not an issue that is focused on just one part of the employment sector. It applies to all employers, including in the public sector. The more connection there is with the private sector, the better we will be able to unlock the social capital that I saw so plainly in all my discussions.
It seems that, at the moment, people are almost being rewarded for being distant from the labour market, because people have to be out of work for so long in order to get benefits. That is completely the wrong way round: the longer you are out there, the less likely you are to get back into work—as Martyn Evans highlighted. That is especially the case for that older age group and it is especially the case if we do not focus on skills. I applaud modern apprenticeships, but they are aimed at young people, not at men and women over the age of 50, who may need support in facing challenges in respect of their skills.
We should not be rewarding people for being out of work. We should be working with employers to do something that benefits people while they are in employment and are having a difficult time over a period of months, in order that we can ensure that they do not leave the jobs market. There is a significant amount of evidence that getting back into work is hard, and that being able to retain a job is more likely to enhance your career and give better prospects. It is an absolute challenge, and Linda Fabiani has highlighted an important issue.
You heard the earlier evidence from Sheffield Hallam University. From my point of view, the evidence is absolutely clear that an independent Scotland could afford its own social security system. I would like your opinion on whether, by setting up its own system, Scotland could narrow the wide, and widening, gap between communities.
First, you are right—we conclude that it is affordable. We conclude that there is a series of political decisions to be made about how you spend that money and what your policy objectives are. We have set out ours, and as part of that we say that inequality is not just a moral issue but a drag on the economy. If you do not bring people in, you will spend more, so there should be preventative spend; I am keen to emphasise that.
If we are not careful, the conversation about work can really upset some people who take a view about work not being the way out of poverty. We recognise that some people will not find their route out, and I have tried to make it clear why we say that. We take the view that we should look at what we do with pensioners and apply that to those who are long-term sick and disabled. It is a critical fairness issue. You can do that only if you build trust in the system. People will be willing to invest more only if they think that they have had a conversation about it and about why we have not tried other routes, too. I wanted to emphasise that point, too.
There are opportunities that independence would present. However, to take a more balanced approach, what struck me was that there are issues with how devolution is operating and there are things that perhaps we could do better. There are also things that we do very well. I mentioned community jobs Scotland, which is a fantastic programme that SCVO operates. It is a partnership that tries to get people back into paid work.
The main point for me is that our remit was about the opportunity that would exist in the event of a yes vote to look at combining employment law, benefits, employability and work support, and to do things in a very different and more effective way. What struck me throughout phase 1 and phase 2 of our work and from the evidence that the committee has gathered is that the type of inequalities that we face will be faced regardless of what happens in September. Regardless of the result of the referendum, if we choose inaction, everybody will lose. At the end of the day, we are talking about people’s lives. What happens in September is important. We are in an important period in which we are considering such issues more than we have done in the past. For me, the conclusion is that inaction is not an option. There are possibilities, but let us be honest about where we are as a country.
I make it absolutely clear that my membership of the group does not mean that I or my organisation support independence or any other form of constitutional change. That is not our job—we are a business organisation.
Lynn Williams made the point that, from an employers’ point of view, a less complex and fairer system that focuses on individuals will be better and will benefit society. I hope that, whatever happens in September, the committee’s work and our work will be progressed by whoever is in power in this country. Taking such positive action will only be of benefit to the individuals concerned, who are currently suffering. We need to do that.
Members of the committee have finished their questions, but there are two technical issues on which I seek clarification. Did you take into account the retention of benefits by existing claimants in your analysis? Has the impact of that been factored in?
Phase 1 of the group’s report looked at that issue in the context of the transition. We said that the primary focus as far as delivery was concerned should be on the current claimants, who should not have their benefits disrupted during the transition period. That was the number 1 priority for the option appraisal. We said that, over a period of time, there should be a dual system. The Scottish Government responded by saying that that would be the case for a very short period of time—it said that a system would be operated jointly by the UK Government and the Scottish Government for a maximum of two years. I hope that that answers your question.
There would be such a period mainly because, without that focus on benefits, we would disrupt people and would be likely to make them concerned about the security of their benefit. We all know how important it is to people who are on very low incomes to have the certainty of knowing that they will receive their benefit, regardless of any changes that take place.
My final question is on affordability, which I think you measured in relation to GDP. Did you consider using any other matrix to measure affordability?
As well as looking at affordability relative to GDP—in other words, relative affordability—we looked at what we in Scotland currently pay for and what the cost of that is. We pay for what we get. A simple affordability measure is whether there is a gap between what is raised in Scotland and what is paid back through the DWP. That is the simplest measure of affordability. There is no such gap. If we had been looking at the issue in another jurisdiction of the UK and had found a gap, we would have had to say, “There is a gap here, which you will have to fill.”
We found that the system in Scotland, as well as being more affordable as a percentage of GDP than the system in the UK and more affordable than the systems in a significant number of OECD and European countries, was currently affordable because it was paid for by Scottish taxpayers. All three of those factors meant that we moved on from the issue of affordability relatively quickly. We had someone from the Institute for Fiscal Studies on our group, who went through all our figures, so I am quite certain that we got that right.
It is helpful to understand that.
To return to a point that I made earlier, the issue with affordability is that not doing something and not changing what is there would be far too costly. In terms of personal cost and cost to the state, it is simply far too costly to have a system that is so complex and bureaucratic that it disempowers people. I think that the issue of affordability goes much wider. Investing in a good system makes good economic sense.
On behalf of the committee, I thank you for your evidence and for the effort and work that you put into producing the report, which, regardless of whether we agree with the idea of independence, has got us all thinking about how we should look at welfare in the future. I think that there is general agreement that the status quo is not an option—that is widely accepted. Your contribution to that thinking has been extremely valuable. Thank you very much.
12:30 Meeting suspended.Previous
Local Impact of Welfare Reform