Category: Scotland

More on the Scottish Government’s Pensions Policy

Saturday’s press releases about pensions have been followed up by a detailed policy document.  The Scottish Government explains that  “For those in Scotland in receipt of the UK State Pension at the time of independence, the responsibility for paying that pension would transfer to the Scottish Government.”  What that means, for the State Pension is that

  • “The single-tier pension would be paid in full to everyone who reaches State Pension Age after the introduction date and has 35 qualifying years of National Insurance (NI) Contributions or NI credits.
  • There would be a qualifying requirement of 7-10 years of contributions.
  • All Additional State Pension rights accrued prior to April 2016 would be retained and paid to individuals on retirement.”

It looks as though Scottish Government is thinking of a  clean break: a country’s responsibility to pay pensions will be based on a person’s address at the time of independence.  Anyone currently in receipt of a State Pension will be passported to the new system.  If you worked in Scotland but now live in England, you won’t get a Scottish pension.  Conversely, if you worked in England but moved to Scotland, you will.  That should mean that there is no such thing, on the first day, as an English or Scottish expatriate; anyone who moves over the Border after retirement will carry with them entitlements from the nation they are coming from, regardless of where the contributions were paid.

The position of people who have not reached retirement age is not so cleanly defined.  It’s supposed to be dealt with by a transitional arrangement.

“For those people of working age, who are living and working in Scotland at the time of independence, the UK pension entitlement they have accrued prior to independence would become their Scottish State Pension entitlement.”

To make this work, the Scottish Government needs to know the UK pension entitlement.  The records, which are linked to the NI number, are not held in Scotland – they are the responsibility of the National Insurance Contributions Office in Newcastle, which keeps over 65 million National Insurance accounts.    The SG would need access to the UK records of most new claimants for the next 35 years.  It’s a big ask.  (It’s already the case that some functions in benefits administration, such as retrieval from storage, are cross-charged between agencies.  I don’t think the SG can assume that the UK government would not cross-charge for the service.)

There are some other issues to resolve.

  • The policy documents refers to people ‘living and working’ in Scotland.  If someone lives in Scotland but has only worked in England, what happens?
  • A person who works for more than 10 years in both countries would meet the qualifying requirement in both.  If the total is over 45 years, there is an entitlement to a full pension and enough further contributions to qualify for a partial second pension.  Someone who worked in two other European countries might reasonably expect pensions from both.  Would two pensions be payable?
  •  1.2 million State Pensions are paid to Britons living overseas.  Which ones will be paid by Scotland?
  •  Once payments to expatriates are accepted, can the government legally avoid making payments to expatriates in England?

None of these issues is a fundamental objection to the development of an independent Scottish system – they are examples only of the little knots that can trip governments up.  Partly in reaction to the scaremongering about independence and devolution, however, there has sometimes been a contrary tendency to pretend that there are no genuine problems to resolve.  In this case, there are.

'Retire early with independence'

The SNP have suggested that plans to raise the pension age would be put off in an independent Scotland.  The Scots die earlier – two and half years, on average – and the calculations don’t look the same for as they do for England.

That has to be right in principle, but it poses a practical problem.  Currently the State Pension is geared to a person’s work history, and the records are held in England.  To administer the pensions in line with existing entitlements, the Scottish Government would need to have access to those records.  There’s no obvious practical way of doing this, short of an individual request for details of each and every person by National Insurance number.    The pension would not be paid by the English authority, so the record would then have to be transmitted back to Scotland for processing and payment.

If there was instead a Citizens Pension, based on age, the records wouldn’t matter, and the provision of pensions could start from scratch.  That is only going to be politically feasible if the scheme is more generous than existing entitlements.  The UK government’s recent reform of pensions has gone some way towards establishing the new criteria, and it would only take a few small tweaks for it to be possible.

The Scottish Government Budget, 2014-15

I have been appointed as Budget Adviser to the Scottish Parliament’s Welfare Reform Committee. The Convener of the Committee has clarified that “The  Welfare  Reform  Committee  expects  its  scrutiny  of  the  Scottish  Government’s  Draft  Budget 2014-15 to focus primarily on the clear budget lines of the Scottish Welfare Fund and Council Tax Reduction.”

The conventions of the post require that all aspects of advice given are confidential and that statements are made by the elected politicians, not advisers. When the Committee has completed its deliberations in November, I will report on its published documents. However, I will not be making any personal comment on either the Scottish Government’s 2014-15 budget or on the Committee’s report.

Benefits in an independent Scotland

A recent report by the Institute for Fiscal Studies has received a lot of press attention, and it has some helpful facts and figures, but it actually does very little towards breaking new ground. It says that benefits in Scotland cost relatively more than England for some groups (notably, for people with disabilities), and relatively less for others. It says that most of the money goes on pensions, which is hardly news. And it says that if there is radical reform, there will be losers as well as gainers, and that it is only possible to mitigate the losses by spending more. So far, so obvious.

The remit of the IFS briefing note is limited; it’s concerned with expenditure rather than equity or methods of paying benefit. It doesn’t actually provide key data on the issue which most people want to know, which is what Scotland could afford. To work that out, it would be necessary to compare Scotland’s national income and government revenue on one hand with liabilities and expenditure on the other – we have a good idea of how much money is spent, but how much revenue there would be is another issue entirely. Without that, it’s not really possible to say anything about the affordability of benefits. There are no indications that Scotland’s liabilities exceed its income to such an extent that benefit payments would be impossible; but beyond that, it’s difficult to draw any firm conclusion. What a country can afford depends on what it’s willing to pay for.

There are more serious challenges to developing a devolved or independent benefit system, but they are as much about mechanism as about cost. One example which emerged earlier this week was the question of what happens to occupational pension schemes: a cross national scheme has to be funded, so any Scottish schemes would need to be separated out. That points to a general issue about such schemes, which is that the smaller the scheme is, the more difficult it can be to balance the contributory base with existing liabilities. The basic way to overcome that problem is through pooling of risks between pension schemes – which generally happens in France (it’s referred to as a form of ‘solidarity’), but not in the UK, and its absence is a major reason for the instability of current UK schemes. A larger problem is the question of what happens to the contributory National Insurance system when all the records are currently held in Newcastle. I’m doubtful that the system is susceptible to devolution. It’s hard to see on what basis records could be transferred; Scotland would need a new and different pensions scheme, like a Citizens Pension.

There are, too, problems of cost control generated by a range of benefits which pay people to buy specific services in the market – housing, social care and child care among them. This approach is inherently defective; in every case it has led to accelerating costs without providing adequate basic protection. Any government, whether it is for Scotland or the UK, would need to rethink.

What independence can do, and what it can't

The debate on Newsnight Scotland yesterday was intended to deal with the perspective of women about independence. One of the questioners asked what independence could do about gender-related violence. Now, regardless of where one stands on the independence debate, and regardless of how important the issue is, this is not a field where either ‘yes’ or ‘no’ has much to offer. I think we can say with reasonable certainty where all the parties in Scotland stand on violence against women: they are against it. And with equal certainty, we can say what difference new constitutional powers would make: none, because it will not create any powers that are not available to Parliament now.  If the issue could be legislated away, there’s nothing in the current constitutional arrangements that would have stopped it.

The Scottish Parliament already has competence in a range of fields – the legal system, education and health. If independence was to make any difference, it would be in fields that are currently ‘reserved’ under the Scotland Act.   I’m not a constitutional specialist, and this may need correction and amendment, but here is a quick list.

Areas where the Scottish Parliament already has authority to act Currently reserved areas where independence would give the Scottish Parliament the authority to act

 

 Currently reserved areas where the primary competence would remain with the EU
  • Health
  • Social care
  • Housing (subject to limitations on finance)
  • Planning
  • Environment
  • Education
  • Policing
  • Emergency services
  • Criminal justice
  • Civil law
  • Family law
  • Local government (subject to limitations on finance and competence)
  • Culture and heritage
  • The constitution
  • Economic policy
    • Taxation and fiscal policy
    • Monetary policy
  • Public expenditure
    • Aspects of local government and housing finance
  • Benefits
  • International relations
    • Foreign policy
    • Defence
    • Overseas aid
  • Immigration and nationality
  • Access to information
  • Business
    •   Insolvency
    •    Employee protection
    •    Minimum wages
  • Consumer protection
    •    Gambling
  • Energy
  • Transport
  • Broadcasting
  • Trade
  • Financial services and markets
  • Fisheries
  • Competition law
  • Intellectual property

 

It seems to make sense to say that the discussion of prospects for independence ought to be focusing on the second column, and that issues which fall outside it are part of a different debate.

The Expert Working Group reports

The Expert Working Group on Welfare, set up by the Scottish Government to review the implications of independence on welfare administration, has reported. The Group recommends a transitional period of joint administration. In a nutshell, more of the UK system is administered in Scotland than benefits for Scotland are administered in England; it follows that the UK government cannot practically withhold cooperation. While that’s true, the most significant obstacle to independent administration would be that the contribution records are held in England; without the records, the current pensions scheme could not be maintained.

However, I’m not convinced in any case that a commitment to maintain benefits as they are is a good idea, for reasons I’ve outlined in this blog – that arrangement would pickle the current system and make it difficult to reform anything. As there is shortly going to be a flat-rate pension in any case, it should not be difficult in practice to move away from contribution-based entitlements – provided the money is available to buy out existing entitlements.

Cancer treatment: it's not just about the postcodes

In the Scottish Parliament, Labour leader Johann Lamont has raised the case of a cancer patient who is “considering moving to England to get free access to drugs she cannot be prescribed on the NHS in Scotland.” Lamont is critical of money being used to pay for paracetamol while this drug is not prescribed.

Cetuximab is a drug prescribed in certain cases of advanced cancer, principally colo-rectal or head and neck cancer; in both circumstances it’s used for a relatively short period in combination with other therapies. It’s approved for use in Scotland and England and Wales on similar terms, but the terms are highly specific. Three issues are worth noting. One is that while the treatment does lead to an improvement in life expectancy, the improvement is very small – two to four months, assuming best supportive care.   The second is that the drug is dangerous: “Cetuximab has a non-trivial safety profile and data are compatible with an increased risk of death in patients administered cetuximab as add-on to chemotherapy.” (Scottish Medicines Consortium)  The third issue, as often happens, is that the drug is also very costly – the Health Technology Assessment suggests that the manufacturers have underestimated both the duration of treatment and the cost of supportive care.

It’s not possible to tell what the basis is for the decision about the particular patient identified in the Scotsman, and I’m not going to try.   It’s not difficult to understand, however, that decisions about prescription have to be made in a specific context, for a specific person, and that different decision-making bodies may reasonably arrive at different conclusions.

Paracetamol, by contrast, is a largely beneficial drug, prescribed in well over two million cases in Scotland every year.   The idea that Scotland should stop prescribing it in order to facilitate paying for expensive drugs with very limited benefits doesn’t look like sound policy.

The euro or the pound? Both, please

There’s a continuing controversy in Scotland as to whether an independent Scotland could or should be part of a ‘currency union’ with England. The assumptions are invalid; England cannot ‘stop’ Scotland from using the pound. The EU’s position is more complex – negotiations on entry to the Euro might be part of a negotiation about EU membership – but this seems unlikely to be a sticking point.

There’s another option, however, and it’s an option for the UK as well as Scotland. It’s not necessary to sign up to anything, or to be part of a currency union, to use a currency. For example, by convention oil production in Scotland, and I assume in the rest of the the UK, is traded in dollars. What’s important is to have the facility to hold, spend or trade the currency, and that’s currently not possible for most of us – the UK banks don’t let customers hold Euro accounts on the same terms as sterling. Why ever not? A rule that provided for banking in Euros would open the possibility for people to use either currency, or both, at their convenience.

‘What Pensions Arrangements Would Scotland Need?’

A paper from the Institute of Chartered Accounts – the question is taken from their subtitle – offers a complex series of questions about pension arrangements.  I’ve raised some of the issues previously in my own submission to the Expert Working Group considering welfare in Scotland.  Pensions are much more difficult to manage than means-tested or universal benefits, which can be delivered and adjusted according to circumstances.  Most pensions are based in established entitlements, based on previous contributions.  That leads to three problems.  The first is how to deal with the rights established for state pensions.  The records are centralised, and entitlements are held by expatriates as well as people in the UK.  It would be difficult to respect those arrangements.  The obvious way round the problem is one that the coalition government has already moved towards, which is to replace the contributory pension with a more universal flat-rate benefit.

The second issue concerns occupational pensions.  It’s clearer in this case where the liabilities lie, because the rights are held in relation to specific funds; in principle, cross-border pensions should work on the same basis.   There is a problem, however, in the way that such funds have  been set up in the UK, often avoiding essential EU regulation.    If a firm declines, or if an industry shrinks, the number of contributors falls, and the resources to pay the pensions are reduced.  The essential way to deal with this is for funds to pool their risks, a process usually referred to  as ‘solidarity’.    The absence of those protections means that many schemes are insecure or non-viable.  The issue has been left to fester for too long.

The third issue concerns transitional arrangements.  The entitlements that people earn last for decades; for example, there are people working now who paid for a Graduated Pension in the 1960s and 70s, and elements relating to the Graduated Pension, which are worth very little, may still be around forty or fifty years’ time.  There is a quick and simple answer, which is to buy out entitlements.  That, of course, would cost money.  However, the alternative – which is to keep existing arrangements for another eighty or ninety years – will cost more over time.

A currency union

We’re told again that England is “unlikely to let a separate Scotland use the pound”.  I’ve made the point before in this blog, both in relation to Scotland and about comments made about “forcing” Greece to leave the Euro, that this is not something that a government can stop.  Despite the bluster, the Treasury paper on currency union makes a central point clear: if Scotland decides unilaterally to use the pound, it can.  When George Osborne asks, then, why the UK should accept a formal arrangement with an independent Scotland, the answer is plain: because that way you have some say, and otherwise you have none.