I spoke yesterday to a reporter from the National, who asked me about the administrative costs allowed for benefits in the new fiscal framework. She quotes me as saying, “The lack of clarity as to what the arrangements will be and what the costs will be that the Scottish Government are expecting to carry makes it very, very difficult. There are clearly matters of concern.” I actually went into a lot more detail than that – for example, the difficulty of dealing with benefits in transition, the uncertain predictions for PIP, and the precedent for costing administrative change in central government.
Nicola Sturgeon has written to David Cameron in these terms.
“there is still considerable distance between us, including capital and revenue borrowing and the transition costs – set up and administration – associated with the devolution of powers within the bill and specifically welfare powers.
For example, on the last of these issues, based on information provided by DWP and our own analysis of published data from DWP’s Personal Independence Payment and Universal Credit business cases, we estimate ongoing administration costs to be approximately £200m annually, and set up costs to be between £400m-£660m.”
The Treasury, it seems, has dismissed the estimate of £200m for administration. Apparently they have commented that “either the Scottish Government plans on running a remarkably inefficient benefit system, or is not serious about agreeing a deal and doesn’t want the responsibility of using its new powers.” So – is £200m a serious estimate?
The problem that most of us have in estimating the costs of administration is that this sort of information is no longer publicly available. The DWP claims a general administrative cost of about 3.5% a year, but that lumps together high cost benefits like ESA with low cost ones like the State Pension. The DWP Annual Reports used to carry a breakdown, but in recent years they have been replaced by glossy propaganda, and nothing in the balance sheets tells us what the administrative costs are. I went back a few years, then, to get an indication of the costs. In 2007-08, the administration of working-age benefits cost £2.98bn, on expenditure of £47.3bn: that comes to 6.3%. Pensions cost £220m for £97.8bn benefits, equivalent to 0.23% of the cost. The administration costs of some benefits will have increased in the intervening period – that is the result of personalisation, conditionality and assessment.
The benefits being devolved to Scotland are not like pensions – they are nearly all the more expensive, fiddly ones. (It’s been reported that there were proposals from the Smith Commission to pass over some more straightforward ones, and they were vetoed by the Cabinet. ) The value of benefits currently being devolved to Scotland is just below £2.7 bn, so the estimate of £200m looks like an administrative cost in the region of 6.9% (that is, £200m out of £2.9bn.) Please bear in mind here that I do not have access to the real figures – I am piecing together a puzzle in an attempt to get a sense of what is happening. That suggests that £200m might be on the high side – 6.3% of costs would be closer to £183m – but it’s a long way from being ‘remarkably inefficient” or “not serious”.