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.
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.
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.
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.
There are reports today that an independent Scotland would face a ‘timebomb’ from increasing numbers of older people. Scotland on Sunday mangled the figures when it reported that “an independent Scotland would have to increase the proportion of GDP spent on welfare from the current level of 14.4 per cent to around half.” That would be three-and-half times current spending. This is obviously wrong, but I’m not going to criticise – one of the hard lessons I’ve learned from writing this blog is that it’s all too easy to jumble figures from different calculations before hitting the ‘send’ button. (And yes, I confess, I just did that again on the first version of this very post.)
The actual increase that’s being reported is that the ratio of pensioners to workers will double, going from 25.8 pensioners per 100 workers to 51.7 by the year 2060. (The figure for the rest of the UK is 45.9). If that is translated into public expenditure at current rates – which probably won’t happen – it implies that two workers will need to pay for pensions what four workers pay now. As pensions currently cost half the ‘welfare’ budget, that implies a 50% increase in that budget, not a 250% increase. There’ll be increased calls on health and social care, too. These are contingencies that need to be planned for, but none of them is catastrophic.
I’ve previously considered the general principles of managing the costs of an ageing population in this blog.
The Herald reveals that the Scottish National Party is apprehensive about the potential size of the benefits bill. As benefits are the largest element in UK spending, there should be no surprise. Equally, it should be obvious that the largest element in the benefits bill – two thirds of spending – goes on pensions, and while Scotland has slightly lower expenditure on pensions than England, this is the part of the benefits bill that is most likely to increase over time.
It would be difficult however to manage pensions in an independent Scotland, for two reasons. The first is that state pensions are contributory, and the existing system could only be maintained through a massive transfer of detailed work records. The second is that transitional people’s rights will be complex, and it is liable to last for fifty years or more. Fortunately, there are straightforward answers to both problems. The quick way to deal with the first problem is to move to a Citizens Pension. The government could de-couple basic pensions from prior commitments, dividing any legacy fund available for S2P among those entitled, and otherwise ignoring for the purposes of benefit administration additional income or additional pensions. The way out of the second problem is to buy out people’s rights.
Fife, where I live, is advertising for a new Chief Executive for the Council. According to the advertisement:
- “We are looking for a driven and ambitious leader with a proven record as a strategic thinker and change manager.”
- “A key early task will be to ensure the smooth introduction of the integrated Social Care and Health model.”
- “You will deepen the Council’s commitment to the values of Performance, Efficiency, Customer Care and Staff Empowerment …”
The first problem here is a misunderstanding of the role. The work of a Chief Executive is explained in a SOLACE report, Leadership United. Much of the work is about accountability to an elected council in a political environment. The Chief Executive is the key connection between councillors and the administration. The Chief Executive speaks for the council officers, and consequently much of the work of a Chief Executive is outward-facing, including external relations, relationships with other agencies and relationships with the public. Then there is management of the corporate team. Only a very limited part of the task is concerned directly with the internal performance of Council departments, and that is mainly done through established systems of accountability. The Chief Executive is not the main person responsible for integrating health and social services. The specification of this post is hopelessly misconceived.
The second problem is that they are looking for the wrong values. There is nothing here about public service, democratic governance, citizenship or rights. There is no expectation that a Chief Executive should listen to public concerns, or engage with them.
The third problem is a misstatement of the type of person they should be looking for. Driven? Ambitious? Are the Council looking for The Apprentice? I had occasion to comment yesterday about the missplaced emphasis on “leadership” in the NHS; the same pernicious doctrine has infected local authorities (and that would be my main criticism of the SOLACE report). In a democracy, the role of leadership properly belongs to elected authority. A Chief Executive is, first and foremost, a public servant, and anyone who doesn’t understand what that means shouldn’t be allowed within 300 metres of public responsibility.
For some time, the Scottish National Party has been edging towards a distinctive position on welfare reform. Scottish nationalism is based not only on a claim to self-determination, but an assertion of a culture and set of values that sets Scotland apart from the rest of the United Kingdom. (There’s a comment on the trend in a blog from the Rowntree Foundation.) This week, Alex Salmond took the argument further in a lecture to the Jimmy Reid Foundation. Jimmy Reid, Salmond argued, “was proud of Scotland’s tradition of compassion, egalitarianism and empathy. He spoke out whenever that tradition was abandoned and betrayed. It is being betrayed at present.”
John Curtice has expressed some scepticism about whether an appeal to collective social values can sway the campaign for independence. He’s been quoted as saying: “What the Yes campaign needs to do is to persuade Scots they will have £400 more in their own pocket, not £400 in their poorer neighbour’s pocket.” (That doesn’t sound like John, actually, but I’ll let that pass.) This may well be right, but I’d like to think the tendency can be overcome. On one hand, many people express strong, passionate views about many issues that don’t visibly or directly affect them – gay marriage, abortion, tax avoidance and MP’s expenses among them. On the other, the issues that shape responses to benefits are are not impersonally altruistic. Welfare reform, unemployment and disability affect people in tens and hundreds of thousands – there can be few people who have no relatives, friends or acquaintances affected. The question for the SNP is not just whether they can have to appeal to people’s self-interest, but whether they can construct a convincing narrative where shared values are translated into support for self-determination.
Part of the problem in doing that is that the SNP’s position to date has mainly been reactive. “Make no mistake”, Salmond says. “What we are doing at present is mitigation – nothing more.” If the SNP wants to establish a distinctive policy on benefits, it needs to identify a model that is about more than restoring benefit cuts; and it cannot do that without committing itself to spending much more money.
Alex Salmond suggests that a Scottish constitution could cover issues like weapons of mass destruction, homelessness and free education. I don’t resile from the policies, but they are not constitutional issues – once they are included, there is nowhere to stop. What should be left out – biodiversity, climate change, sustainability, EU membership, pensions, marriage, health care? When the abortive European constitution was under discussion, I wrote this:
A constitution is a foundational statement. It needs to be communicative, transparent, and justiciable. Every constitution needs to set out the basic institutional framework. It needs to state primary legal rules – rules of recognition, change and adjudication. It should probably state fundamental principles, like the Bill of Rights in the US constitution. But it should not include policy. Instead of confining itself to constitutional issues, the “constitutional treaty” sought both to consolidate the content of previous treaties and to include substantial elements of previously agreed policy – issues like the environment, agriculture and fisheries, and commercial rules. However important these may be, they are not constitutional principles; and whatever the merits of the policies may be, it is very questionable whether the policy which is appropriate now should be expected to be appropriate a hundred years from now.
My colleague Paul Arnell has argued against a constitution, giving the example of the right to bear arms in the USA as bad law that has proved impossible to change. That seems to me an argument against the inclusion of substantive law, rather than an objection to all constitutions. A constitution should confine itself to principles and the institutional framework. It should not include matters of policy or substantive law. And it must be short.
The Herald asked me yesterday to comment on whether we could afford universal services for older people; here is my response, as it appears. (The Herald website allows direct access to first-time users; after five views you have to register.)
The debate on free services for older people lumps three questions together. The first is whether we can afford to support services for growing numbers of older people. That question has been reviewed in many reports; the answer comes out, consistently, that the commitments are sustainable, but they will have to be paid for in higher taxes or contributions. Many people imagine that when they pay for pensions, that the money is being saved for their old age. In most cases, it isn’t. Contributions now largely pay for pensions now; the current generation of workers is relying on the next generation to pay for them in turn. The real test, then, is whether we’re willing to pay for pensioners now.
The second question is whether help should be free. The critical judgment is about what should be provided, and what should not. Some essential items we expect pensioners to pay for (food and telephones), some we don’t (personal care and prescriptions) and for some the signals are mixed (cleaning). The arguments for free services are partly about solidarity – services we want people to have and have a duty to provide – and partly self-interest, whether we’d want ourselves or our families to be charged in the same circumstances. Few people in Scotland would want everything to be paid for: it’s difficult to make the case that help with incontinence – an important component of health care as well as personal care – should not be free.
The third question is about universalism, whether benefits and services should go to everyone, or only those in most need. Services that test people’s needs are complex, difficult to provide fairly and can be expensive. Tests are often intrusive, burdensome, demeaning and many are put off from asking for help. Universal services use simple eligibility criteria, such as age, so are cheap to run. The basic argument for bus passes, for example, is that many older people need help, extending it generally allows those who need it to get help, and people who have alternative transport don’t use the buses. When money is short, simple generalised provision is often the way to go.