Welfare spending in Scotland

The Institute for Fiscal Studies has today published a report entitled “More spending on disability benefits and less on housing benefit per person on Scotland than in the rest of GB”.

The report finds that higher spending on old-age benefits and disability is offset by lower spending on housing benefit. It states that the ageing population of Scotland will mean that spending will grow more quickly than in the United Kingdom as a whole. Independence for Scotland would provide the Scottish Government with the opportunity to make reforms to its benefit system. However, an independent Scotland would have to spend more on benefits than is spent at the current moment in time or it may risk creating a group of “losers”.

The main findings of the report are as follows:

• Benefit spending (including spending on tax credits and the state pension) in Scotland amounted to £17.2 billion in 2011–12, the last year for which full figures are available. This is around 30% of all government spending in Scotland and 11.4% of Scottish national income (including a geographical share of North Sea output).

• Benefit spending per person in Scotland in 2011–12 is estimated to have been £3,238, 2% higher than the average for Great Britain as a whole (£3,176). This was lower than in Wales (£3,540), and the North and Midlands of England (£3,320), but higher than in London (£3,082) and the rest of the South of England (£2,962).

• There are substantial differences in spending on different types of benefits. Expenditure on disability benefits per person in the population was 22% higher in Scotland (£593) than in Great Britain as a whole (£485). This, at least partly, reflects the fact that a higher proportion of Scots report having a disability or health problem that limits their activities than is the case in Great Britain as a whole.

• Spending per person on housing benefit was around 12% lower in Scotland than in Great Britain as a whole. This reflects both lower private and social sector rents, and a larger fraction of people on housing benefit living in social housing.

• Spending per person on old-age benefits was 4% higher than for Great Britain as a whole, while spending on child benefits and tax credits was 9% lower. But this reflects the different age profile of Scotland. The amounts spent on child benefits and tax credits per child and old age benefits per person aged 60 or over were essentially the same in Scotland as in Great Britain as a whole in 2011–12.

This report supports the financial case for keeping welfare generally at UK level as we have argued in Red Paper publications. The exception is Housing Benefit, which should be devolved because it is a key element of the already devolved housing policy. There would also be a proportionate financial gain because Scotland spends less than our population share of the the UK budget.

Given the UK Government’s damaging welfare cuts, it has been an important part of the Yes campaign’s case that independence would enable Scotland to take a different path. While that is clearly the case, what this paper shows is that such a path comes at a price and the SNP have to demonstrate that they are prepared to commit to paying that price. The evidence so far is that Scandamerica is their policy and that simply is not credible.

Energy companies, transparency and market reform

Energy companies and Ofgem are blasted by MPs today over transparency of profits. Costs can be moved around between divisions making the apparently low retail profit margin figure meaningless.

Sir Robert Smith MP said, "At a time when many people are struggling with the rising costs of energy, consumers need reassurance that the profits being made by the 'big six' are not excessive."

Their main concern was with companies dividing their businesses into divisions, it was unclear from the accounts if companies were simply moving costs and profits around. Companies have refused to provide details of their generating profits, claiming commercial confidentiality.

As a result MPs were again critical of Ofgem for having a, "relatively light touch approach and for not fully implementing the recommendations of the accountants it commissioned to improve how energy companies report their profits. Ofgem needs to use its teeth a bit more and force the energy companies to do everything they can to prove that they are squeaky clean when it comes to making and reporting their profits."

The cross party committee also supported tackling fuel poverty through taxation rather than consumer levies; "Tax-funded public spending is a less regressive mechanism than levies on energy bills, which can hit some of the poorest hardest. Shifting the emphasis from levies to taxation would help protect vulnerable households."

At the Scottish end of the Big 6, SSE was busy drawing a line under the mis-selling scandal at their annual meeting. Lord Smith trumpeted the company's 'six core values' and the service guarantee that he hoped would build trust in SSE. Although he had to admit that these values were in place during the scandal. 9000 customers had been refunded an average £75, and the exercise was 98% complete. It only goes to show that it's easier to write value statements than deliver them!

The old chestnut of a takeover of SSE was also raised at the AGM in the context of the new CEO. Lord Smith said, "We have no intention of accepting offers from people overseas, we haven't had any yet, but we intend to rebuff them". He wasn't quite so robust when asked about offers from UK firms, effectively confirming that offers had been made.

While SSE reported a small fall in customer numbers, ScottishPower revealed that it added 400,000 new customers to its 5.6 million base in the first half of 2013. However, profits fell by 17.7% to £64.7m due to higher energy-efficiency levies imposed by Ofgem. Production at Scottish Power was up by 4.9% and the company said electricity demand in the UK had jumped by 0.2%, while gas demand grew by 5.9%.

Both companies are engaged in a lobby campaign over market reform and transmission charges and used the annual meetings to press their case. SSE's capacity cut at Peterhead was questioned in a piece by Steven Vass in yesterday's Sunday Herald. My quote in the piece expresses some scepticism over the cock-up theory. A big investment to cut capacity doesn't sound like much of a strategy either.

While the UK Government has recently outlined their master plan for market reform it still isn't enough for investment plans to be built on. Energy UK chief executive Angela Knight said, "We by no means have got the whole story. We all went cantering into this saying: that's it, we have got the information. Uh oh, no we haven't". Further details are expected in August and then the package needs state aid approval from Europe. So still some way to go.

Crossposted at Utilities Scotland

It's about building more houses, stupid!

Scotland is simply not building enough houses to meet current and future levels of need. A report today from Audit Scotland confirms the analysis in UNISON Scotland's recent housing paper.

The number of new private homes built in Scotland has more than halved in  recent years and it could be more than 20 years before there are enough new homes to meet the projected increase in households in any one year. The picture is no better for council and RSL homes. Only 42,000 of the 56,000 council and RSL homes needed since 2005 were built, a shortfall of almost 14,000 homes. Between 2008/09 and 2011/12, Scottish Government revenue budgets for housing fell by 24% in real terms and capital budgets by 29%.

As always Audit Scotland do very good info graphics that illustrate the key facts.

They also highlight the benefit cuts which the UK government is driving through will have a disastrous impact on the registered social landlords – councils and housing associations – which should be providing more and better social housing to meet the shortfall.

You can over complicate housing policy. What we simply need is an expansion of public sector housing. In our recent document ‘Funding And Building The Homes Scotland Needs’ we have made innovative proposals for using pension funds to do this. Audit Scotland's report makes the case for the Scottish government to now take proposals like these on board. Social housing is the key to solving our housing crisis in Scotland.

Lessons from the horsemeat scandal

The horsemeat scandal should be an alarm call for government and the industry over the importance of food safety. The Scudamore Report on the incident makes recommendations for future action.

The Scottish Government has now published the report of the expert advisory group (EAG) on the horsemeat scandal. I would highlight a few key points from the report.

Firstly the EAG recognises the stretched resources of local authorities. This is something UNISON Scotland recently highlighted following a survey of members working on food safety. The report states:

"A number of Scottish Local Authorities believe that the impact that a situation similar to the recent horsemeat crisis has on the already stretched resources of Local Authorities needs careful consideration. A review of local resources including all aspects of food standards enforcement would possibly find many Local Authorities under major resource pressures. At a time when Local Authorities’ budgets are declining it will be critical to decide what is required and whether priorities need to change."

Secondly, while the horsemeat scandal was primarily a labelling issue, the EAG recognises the importance of strong inspection and sampling regimes. UNISON Scotland has previously warned that these regimes have been weakened in recent years, largely at the behest of the industry. The report states:

"In dealing with processes it was important that the inspection and sampling regimes by both Local Authorities and industry were appropriate and well-targeted to the areas of highest risk. Audit and inspection by the Local Authorities and the FSA operations service was important as was the development of accreditation and assurance schemes."

"FSA Scotland should ensure that unannounced visits to cutting plants and other food businesses take place with frequency based on risk and known compliance with the regulations."

Thirdly, the EAG highlights the importance of strong sanctions. Current sanctions are simply not up to the job. The report states:

"A robust regulatory regime with strong sanctions was essential particularly where there was clear evidence of large scale fraudulent activity. Meaningful fines or custodial penalties need to accompany serious food fraud otherwise it will continue to be seen as a relatively risk free enterprise."

Overall, this report is a welcome recognition of the task facing the new Scottish FSA. The light touch regulatory approach is inadequate for both food safety and the industry. The Scottish Government needs to take a much more robust approach and resource it.

What did the Roman's (aka Labour) ever do for us?

I have previously expressed some irritation at the myths perpetrated by right and left about Labour's record in office at UK level on social policy. From the right claiming that high public spending caused the financial crisis and from the far left that Labour achieved nothing.

Self evidently both positions are unlikely to be correct and therefore I was pleased to see that the London School of Economics have completed a very detailed review of the evidence. They conclude that Labour spent a lot, achieved important outcomes and the big expansion of public spending before the recession did not cause the fiscal crisis. This follows a Joseph Rowntree report that made some similar points in a Scottish context.

Public spending under Labour went up by 60% - from 39.5 to 47.4% of GDP. Undoubtably a large rise but the UK started from a low point. Until the financial crisis hit in 2008, spending levels were unexceptional by historic UK and international standards as the chart below shows. That spending improved access and quality of services - waiting times fell, pupil-teacher ratios improved as did access to early years provision. Poorer areas got better facilities, lower crime and less vacant housing. Outcomes improved and gaps closed on virtually all the socio- economic indicators Labour targeted, such as poverty for children, pensioners and school attainment.

So the evidence is clear, in the areas Labour targeted there were real improvements. However, the picture is less good in other areas. In particular, benefits for working age people without children fell as a proportion of GDP. This means that poverty for working age people without children rose. There was no real change in levels of income inequality. Wage inequalities grew and disparities in regional economic performance persisted. Efforts to tackle health inequality had mixed results.

So why does this matter now? As Polly Toynbee said in her Guardian column there are deep lessons here for Labour. They failed miserably to blow their own trumpet, doing this good mostly by stealth, unsure that social programmes aimed at the poor would win re-election: "This government gets away with demolishing what Labour did because the social democratic idea behind it was never embedded in the national psyche". Change was not cemented in the hearts and minds of voters. Not even when working people paid the price of the banking bail out did Labour seize the chance to make a stronger social democratic case.

And it could get worse if Labour doesn't make the case for a better way. I was at UNISON's Labour Link Forum this weekend and Dave Prentis made the key point that if Labour leaves a vacuum others will exploit it, primarily UKIP, at least in England. Labour doesn't need to accept Tory spending limits - they need to tear them up.  As we are celebrating the NHS at 65, the two Ed's might want to recall the classic Bevan quote, "We know what happens to people who stay in the middle of the road. They get run down."

The Tories can get away with the cuts only if voters believe Labour overspent and left nothing to show for it. This report shows that Labour used the increased spending to expand public services, improve outcomes and make progress towards greater equality. However, income inequality was still high by international standards, and very large socio-economic gaps remained on many indicators of health, education and living conditions. Whether Labour did enough remains an open question - but there were real gains that we should shout about and finish the job in our next policy programme.

Lies, damn lies and the balance sheet

Comprehensive, transparent and robustly scrutinised public financial reporting will become increasingly important as the Scotland Act is implemented over the next three years and the Scottish Parliament gets its new fiscal and financial powers. In this context, Audit Scotland has taken a close look at the public sector balance sheet.

I can remember when studying for an MBA module being shocked when the lecturer described the balance sheet, as the opinion of the accountant who prepared it. I had naively assumed that it was simply a matter of getting the sums right! John McLaren in the Scotsman puts it more elegantly as; "The finding that liabilities are currently estimated to outweigh assets should not be of great concern at present. For a start the methods by which such assets and liabilities are valued is very much an art rather than a science."

On this basis we should not be losing too much sleep over the rather excitable headlines of an £8bn 'budget shortfall'. If valuing assets is a tricky business in the private sector, it is even more so in the public sector. Roads, schools and hospitals are not traded in the same way as other assets, so it is difficult to value them and not a great deal to be learned if you do. That's not to say that the report is not useful.

Audit Scotland make the point that there has been a shift in how capital projects are financed, from grants to borrowing and private finance. Obviously the latter two options have to be repaid. Local government has its own prudential borrowing powers, but health boards don't. As a consequence the NHS has used the more expensive private finance to fund 22% of its current property, plant and equipment portfolio, compared to 10% for local government. This is one of the reasons UNISON has argued for health boards to be given prudential borrowing powers.

For those who thought PPP/PFI is just an historical cost, think again. The report confirms that public bodies will pay an estimated £27bn over the rest of the life of these contracts. The Scottish Government is a bit coy in their infrastructure plan about the value of future PPP schemes, but it looks as if at least £3bn of projects (in capital value) will be funded in this way. The important point about PPP and the balance sheet is that these are very long term contracts with little flexibility, either financially or in terms of service provision. Another factor we warned about at the time.

There are predictable headlines about pension liabilities, though we have been spared the very silly 'black hole' headlines this time. For the record, the report confirms that the Office for Budget Responsibility (OBR) has estimated the effect of the recent changes to pension schemes. Overall UK gross spending will fall from the current 2.3 per cent of Gross Domestic Product (GDP) to between 1.3% and 1.5% of GDP by 2061/62. But let's not spoil a big number with the facts!

The report also highlights potential liabilities for the Scottish Government as the funder of last resort. This is greater when third parties are delivering services, as the Southern Cross debacle proved. Another example is the impact of the UK Government welfare reforms on the financing of social housing. However, this takes us into risk management territory and that's even more difficult to cost.

The Auditor General has unsurprisingly avoided the independence consequences of all this, but rightly points out that sound financial reporting is all the more important as we approach greater financial devolution. That of course would be even more important if Scotland was independent.

So, transparency in financial reporting by all means. But let's look past the headlines and recognise that there are no absolute certainties when it comes to the public sector balance sheet.

Business case for the UK?

There is more heavyweight analysis from the UK Government today in the latest publication in the Scotland Programme series, setting out the case against independence. This document focuses on the business and microeconomic framework.

While this is a worthwhile series of papers, I have to admit to being irritated by the spin trailers days before it is published. Such partial views, without being able to check the full document, inevitably leads to less than thoughtful responses. A criticism often made of the Yes campaign, but on this occasion they can hardly be blamed.

The paper makes a big play of the integrated nature of the UK and how Scotland's exports are dominated by the UK market. £45.5 billion in total, double the levels exported to the rest of the world and four times as much as to the rest of the European Union. This close relationship is hardly surprising given the union, but it is also a growing link. Between 2002 and 2011, the value of Scottish trade with the rest of the UK increased by 62 per cent, compared with a 1 per cent increase in value of exports to the rest of the EU combined.

The paper argues that while trade would continue, barriers, even within the EU, would make it more difficult for Scottish firms. This could be a concern for the service sector and financial services in particular, who sell a large proportion of their products to England. It is also a bigger issue for large firms and that might explain while SME's appear to be more relaxed about independence. It does have to be said that smaller countries in the EU don't have much problem trading with their bigger neighbours. In fact, as I have previously blogged, a small country like Denmark remains closely dependent on Germany and that would be the case with Scotland and England even after independence. You can change statehood rules, but you can't change the essential geography.

While personally I am ambiguous about EU membership, I suspect exporting businesses in Scotland would be more concerned about the pull the Tory Euro sceptics have on their party's policy direction. EU withdrawal somewhat undermines the UK case on integration.

The second big argument in this paper is economies of scale. I am less impressed by this as the UK is far too centralised and it reinforces the London effect. The claimed savings from economies of scale rarely materialise and are often masked by cost displacement. It is no small irony that the Scottish Government is guilty of the same offence. The longer minister's are in power, the more the centralising tendency sucks them in.

It was perhaps unwise to include postal services in this paper. Something of an own goal given the ConDem privatisation and post office closures. The postage stamp principle is more at risk from them than through independence. No other country in the world has attempted to separate post offices from the mail, for very good reasons. References to transport infrastructure is equally unwise, given the growing cost of HS2 that shows no sign of getting anywhere near Scotland.

References to the UK's 'flexible labour market' is not likely to inspire much support from trade unions for the No campaign. Many companies manage their labour force across several countries. Of course it's more complex, but not a huge problem. The paper says, "There is evidence that the UK has the widest range of types and patterns of work for workers to choose from". That will be zero hours contracts then! The problem with this argument is that most workers don't have the power to 'choose' anything. It's a big business, Neo-liberal case for the UK.

The section on Corporate taxes ought to have been a plus for this paper as the SNP are in a complete mess on this point. However, the section is undermined by references to the advantages of competitive tax rates. Advantages that are certainly not reflected in the UK Government's own budget documents.

Compared with the issues raised around currency, monetary and fiscal policy, EU membership and aspects of defence - this is a pretty weak paper. However, it still raises lots of questions that the Yes campaign have struggled to respond to. Jim Sillars sums up the problem (a little harshly) in today's Scotsman; "A comparison with the quality of the material produced by the Treasury and that produced by Salmond’s office in recent weeks, shows a difference between a Premier League and a Third-Division outfit. As for political ability in what is a new arena, the big league, for the SNP leaders (and especially their advisers), there is cause for concern."

However, there is little in this latest paper that will send many of us hurrying along to the 'Better Together' offices.


Cross posted at Red Paper.