Category: Scotland

Reforming the 'iniquitous' bedroom tax

The Welfare Reform Committee at Holyrood has published an interim report on the bedroom tax, which it condemns as ‘iniquitous’ and a breach of human rights.   (For the avoidance of doubt, I was not involved in this report – my role as adviser to the Committee, which has now finished, was confined to the Draft Budget, where they considered the Scottish Welfare Fund and the Council Tax Reduction.)  The strength of the condemnation reflects a level of cross-party consensus in Scotland.   It’s been condemned by organisations like the Scottish Federation of Housing Associations, who I work with, and Shelter.  The bedroom tax has saved very little money, and getting rid of it shouldn’t in principle cost very much.  Both the Scottish Government  and the Labour opposition have been looking for a way to remove the policy.

The central problem here is that the Scotland Act 1998 reserves social security benefits in general, and help with housing costs in particular, to Westminster.  Scottish authorities are only permitted to administer the finance and delivery of Housing Benefit.  The strategy of the Scottish Government has been to press Westminster for an increased budget for discretionary payments and effective delegation.  The Labour party is currently proposing that the Scottish Government uses a different power, to subsidise the provision of housing through organisations, and to write off debts attributable to  the bedroom tax.  The policies are moved by the best intentions, but there are problems with both mechanisms – both are difficult to administer and open to inequities.  The process of writing off debts threatens a degree of insecurity for tenants and social landlords alike.

I was invited onto Newsnight Scotland yesterday to explain the basic issues – it should be on Iplayer for the next few days.  I’d previously had a longer discussion with a BBC journalist and had expected the bit I’ve just explained here to be in a prologue, so we didn’t get on to the next bit at all.  Housing Benefit was designed to do three things at once, and it doesn’t do any of them particularly well: income maintenance, the finance of social housing provision, and the creation of a market in rented housing.  The benefit is difficult to understand and difficult to administer, and it produces some perverse outcomes.  Despite all that, it’s been made to work, more or less; and tenants, social landlords and benefits administrators are all deeply apprehensive about changes.  There’s every likelihood, then, that whatever happens now, Housing Benefit is going to be locked into something like its current shape. If you were setting to sea in a boat, you wouldn’t want it to leak and list like this one does; but once you’re far out in the water, it’s hard to think of a better alternative.

 

 

 

Mark Carney on currency union

The first part of Mark Carney’s Edinburgh speech was a clear and helpful summary of the pros and cons of monetary union.  In favour of monetary union, there are

  • reduced transaction costs,
  • lower borrowing costs,
  • opportunities for investment  and
  • greater economic integration.

Against, there are

  • the loss of the capacity to form an independent monetary policy,
  • a reduced ability to use exchange rates to absorb shocks – the burden is liable to be  on in prices and wages
  • the possibility that the dominance of monetary policy will lead to ‘pro-cyclical’ economic policy – making slumps and recessions worse.

The second part was a review of the conditions for such a union, which he identifies as

  • free movement of labour, capital and goods
  • a banking union, and
  • fiscal integration.

I was less convinced of his arguments here.  The Crown Dependencies (the Channel Islands and the Isle of Man) are recognised as part of the sterling area without meeting any of those conditions.  These conditions seem to be part of a negotiating position, rather than essential requirements.

The referendum on independence and the economy

The debate on independence continues to disappoint.  While I was amused by Alistair Darling‘s cutting comments on the SNP’s position on the Eurovision Song Contest,  it’s hardly the stuff on which decisions are made.  Scotland’s Future, the White Paper, treats the independence debate as if it was a short-term election manifesto; the Better Together campaign has harped largely on issues that, even when the criticisms are justified, are largely capable of being settled in short order through minimal negotiation.  The strongest arguments for independence are arguments for self-determination, diversity and independent decision making;  but the principal advocates of independence, the Scottish Government, are radical centralisers, who have limited the financial powers of local authorities, unified police forces and fire service, and currently are legislating to centralise social care.  The strongest arguments for union – Gordon Brown made them last year – are arguments for solidarity and equal rights, but the UK government is firmly committed to neoliberal principles, and it has been working assiduously to discard both.

For several months, John Curtice has been arguing that people’s views on the Scottish economy are shaping their preference for independence.  An ICM poll this morning suggests that Yes Scotland is gaining ground, and that more people are likely to think that Scotland will benefit economically from independence.  I wonder whether the link runs in the direction that John assumes.  There’s a literature on ‘motivated reasoning’; people are as likely to find evidence to support their views as they are to form their views on the basis of evidence.  If someone is looking for a reason to support independence, saying that it will make the economy better sounds rather more reasonable than saying ‘I just feel that way’.  In other words, some people will be saying the economy will improve because they favour independence – not the other way round.

Scottish independence: five unions

The Scottish Government has been working hard so as not to startle the horses.  The White Paper reads less like a blueprint for independence, more like an election manifesto: policies are incremental and specific.  One of the big selling points, the provision of better child care, is widely seen as something that the Scottish Government could do now.   The approach of the White Paper may be a mistake.  The problem is not that the policies are bad; it is partly that the current government cannot bind an independent Scotland to follow its pledges, and partly that those policies have been shaped by existing policy in the UK.  A programme for independence has to consider powers, not a shopping list of policies.

First Minister Alex Salmond has promised the maintenance of five unions:  the currency, the monarchy, defence, Europe and the ‘social’ union.   And there is effectively a sixth union being considered: the union of benefits administration across boundaries, including a commitment to maintain existing pensions entitlements which will take the best part of a century to unravel, and to principles which mirror the distorted priorities of the Conservative/New Labour consensus on ‘welfare reform’.

The monarchy is (perhaps surprisingly) uncontroversial – several independent Commonwealth countries have the British Queen as their head of state, and the arrangement has the great merit of stopping local politicians from claiming the authority instead.   The negotiation of terms with Europe may be difficult, but as the White Paper says, a greater risk of being forced out of Europe is posed by the UK’s coming referendum.   The ‘social union’ is vague, but there are many ties and they are not going to disappear overnight.

The other unions are problematic.  The idea of a currency union is unsound; it would subject a supposedly independent Scotland to the economic direction of London.  (Several countries simply use other countries’ currencies.  I lean to the principle of free use of exchange currencies – the Euro, the pound or the dollar – coupled with an obligation on banks to hold accounts on the same terms for any exchange currency.)   The ‘defence union’ would have to be about more than NATO, but it seems to me that a Scottish Defence Force cannot sensibly be erected from the residuum of three distinct armed services – it has to be reformed in an appropriate administrative and operational structure.

The union of benefits administration also seems unwise.  Pickling the existing benefits system in its present form  has the advantage that people will not be worse off, but they will not be better off either; and in many ways, including coverage, stability, equity, information management, avoiding poverty and social protection, the present system is not performing well enough for people of working age.

Some migration we can't control

There are some elements of potential immigration which the government has no real control over, but they’re not necessarily the ones getting all the publicity.  Currently there are probably more than five million Britons living permanently abroad – a widely cited figure from the IPPR was 5.6 million.   More than a million of these are in Australia, more than 800,000 in Spain and the USA, over 600,000 in Canada.  (It may also be worth noting that 18,000 British citizens live in Bulgaria, one of the countries which the tabloids have been convinced is going to disgorge lots of people into the UK.)

The picture relating to benefit dependency is slightly different.  According to current DWP figures, 1,221,000 benefits are paid to living to Britons abroad, of which 1,200,000 are pensioners.  The country with most claims in payment is Australia, with 250,000 pensioners, followed by the USA, Ireland and Spain – those four countries together account for about half the total.

It’s interesting to speculate what would happen if a significant number of these people  decided to come to Britain.  If people are already receiving benefit, the cost is mainly  going to be in other services.  But there are four and a half million Britons living abroad who aren’t receiving benefit.  How odd that they’ve been able to resist the lure of benefit tourism.

Afterthought, 9th January:   There is also an issue here which relates to the debate on Scottish independence.  Presumably an independent Scotland would have a proportion of expatriates to support – possibly 1 in 12, or 100,000.  That is likely to come at a cost of £600-£700m a year, subject to negotiation, which would need to be factored in to the budget calculations.

Response to the Expert Working Group on the future of benefits in Scotland

I have sent a submission to the Expert Working Group, which is reviewing the future of benefits in Scotland.  The Group has asked a series of questions about how benefits should be designed.  My paper is available here.

Welfare Reform Committee Report on the draft budget

I was adviser to the Scottish Parliament’s Welfare Reform Committee  for their scrutiny of the Scottish Government budget.  Their report, focusing on the Scottish Welfare Fund and Council Tax Reduction,  has now been published here.  The report is the Committee’s; the conventions of the advisory role mean that I am not permitted to identify what contribution I made to this process.

Three objections to independence

In the reaction to the White Paper, I’ve seen three serious objections raised.  It can sometimes be difficult to spot the arguments that matter, because so many of the objections have been silly.  There are not going to be guards with dogs patrolling the border, people in Scotland can’t be stopped from using the pound any more than they can be stopped from using the dollar or the Euro if they choose, and there is no obvious reason why people in Scotland shouldn’t have the same ability to see Doctor Who that people in Belgium have at present.

The first serious objection comes from Alastair Darling.  It is that an independent Scotland will have to budget for a National Debt, and that even if the amount is currently indeterminate and subject to negotiation it has to be counted in the public finances.   Part of the point of becoming independent is that Scotland will be seeking to raise finance through its own bonds, and that too has to be budgeted for.

The second serious objection comes from the European Union.  Although I think their legal position is questionable, both the Commission and the government of Spain have now raised objections to easing Scotland’s entry.   This will have to be the subject of negotiations but there is an immediate cause of action to be considered by the European Court of Justice: it is whether European Citizens (for everyone in Scotland is a citizen of the European Union as well as of the United Kingdom) can legally be stripped of their citizenship, and the protections that implies.  That needs to be resolved by the Court as a matter of urgency.

The third objection has been expressed by economist Yanis Varoufakis.  He argues that the Scottish Government’s caution has led them astray.  Asking to be part of a monetary union means that Scotland will be subject to the disciplines imposed by the bodies that manage sterling without having any effective power to decide what those disciplines are – precisely the situation that Greece has found itself in, in the Euro zone.  This is the worst possible option for economic management.  The way out is for Scotland to have its own currency, or if it uses sterling, at least its own economic policy.

Scotland's Future

The White Paper on Independence was released at 10.00 this morning.  I was in the BBC Studio to read it, so that I could comment on the welfare provisions.  Benefits are identified as a large part of what independence offers.  Among the questions reviewed is, “what will independence deliver for me?”, and three of the six bullet points given in response are about social security or tax credits.

The Scottish Government has taken a very cautious approach.  Most of what they plan is a preservation of existing rights and benefits, and where there have been recent reforms going in the wrong direction – Universal Credit, PIP, the bedroom tax and slower uprating – they have said they’ll reverse them.  Beyond that, they also promise to protect the position of pensioners, and to respect all accrued rights under the UK system.

That last point prompts some concern.  Every promise to maintain benefits runs the risk of locking the Scottish Government into the existing system.  Unless new money comes in, it’s never possible to make someone better off without making someone else worse off.  The more commitments that are made to maintain the system, the less scope there is for independent action – and this document effectively commits itself to keeping pensions, housing benefit and disability benefits and tax credits, and uprating them with inflation.  That’s the vast majority of benefits paid now.    The commitment to protect accrued rights means that if someone aged 21 is contributing now, they may well be still entitled to benefits based on those contributions in seventy years’ time – and in 45 or 50 years’ time, the SG will still need access to records held in England to be able to do it.  (What the government could have done instead was to pledge that people would not be left worse off  as a result of changes, buying out rights where appropriate.)   The commitment in this document means either that they keep elements of the UK system for the best part of a century, or that ultimately they will have to renege on their promises.

Beyond that, there are also elements in what the SG is proposing that identifying them strongly with the current programme of welfare reform.  They want benefits to be “swift, streamlined and responsive” to individual circumstances.  They will ‘review’ conditionality, but they’ll keep it.  “Our overarching aim will be that benefits work hand in hand with programmes designed to help people find work.”  Oh, dear.   This has been the blight of the current UK system.  Most benefits have nothing whatever to do with helping to find work, and everything being done in this direction impairs the benefits system and muddies the water further.

 

Devolving Housing Benefit would change Universal Credit

According to today’s Scotland on Sunday, the Conservatives are considering devolving responsibility for Housing Benefit, partly as a means of defusing the ‘toxic’ issue of the bedroom tax.  There are some good arguments.  The first is that Housing Benefit depends on local housing markets.   The second is that local authorities have a long track record of operating Housing Benefit; they have the people and the organisation to do it.  Third, rent policies are different in Scotland from England.  The underoccupancy penalty in Scotland is not removing a ‘spare room subsidy’ – it’s a penalty, taking somewhat more from Housing Benefit than the cost of the rooms in dispute.  Fourth, the flexibility of devolution could make it possible to get around some of the problems that have emerged in the pilots through not paying social landlords direct.

If Housing Benefit was to be devolved,  however, part of the plan for Universal Credit would unravel.  Universal Credit was supposed to produce a unified taper, or ‘marginal rate of deduction’ – the speed at which benefit is withdrawn as income increases.  It is going to be set at 65%.  The figures never quite come out looking like that, because UC will be calculated on net income, after tax, national insurance and some other benefits which are not being integrated in the system.  If a person is paying tax and National Insurance at 32% – there are several variations and possible permutations – UC will take away 65% of the remainder; that comes to 76.2% in total.

At current rates, Housing Benefit is withdrawn at 65% and Council Tax Reduction is withdrawn at 20%.  If tax, NI and UC take away 76% of additional net income and CTR and HB together take away 85% of what’s left,  the combined deduction  would be over 96%.   Even without tax, it’s 95%.  (I’m assuming here that HB and CTR would be calculated after UC, and that income from HB and CTR would be disregarded for UC purposes.  If they weren’t, and  if there were different time frames, the calculations could be bewildering.)    To avoid these problems, either the tapers would have to change, or UC  would have to be calculated differently,  with different rules where Housing Benefit is not part of the scheme.

If Universal Credit was to go forward without Housing Benefit, it would be a move toward a  different model – tying Tax Credits to something that looks a lot like Supplementary Benefit.  I’m not sure that this combination makes any more sense than the rest, but the smaller the pretensions of the scheme, the less scope there is for catastrophe.