What does UK benefits overhaul mean for Scotland? | UK News

Significant reforms to restrict some sickness and disability benefits will be announced at Westminster later.

UK Work and Pensions Secretary Liz Kendall is expected to tighten the rules on Personal Independence Payments (PIP).

The knock-on effect could result in less money for Scotland and the SNP says the cuts could “haunt Labour” for the rest of its time in government.

The party says there’s still time for a U-turn before they’re outlined in the Chancellor’s Spring Statement next week.

Liz Kendall say the reforms will “ensure there is trust and fairness in the social security system” for years to come.

And her deputy, Sir Stephen Timms, said he is “sad” that speculation about the reforms is causing anxiety among people who rely these benefits.

Much of that speculation is because of disagreements within the UK cabinet about how to handle spending pressures, disagreements which spilled into the open last week.

The Treasury is reported to be looking for a £6bn cut to spending on benefits for those with disabilities or restrictions on their capacity for work.

Important, parts of this welfare system are being devolved to Holyrood and applied differently for Scots.

That’s complicated. There are two main types of benefit for those with disabilities. One used to be known as incapacity benefit.

As Universal Credit has rolled together benefits into a single system, it has included that element, usually aimed at those unable to work.

That’s not to be confused with benefits that go to people who can work, and many of them do, while receiving one of three payments:

• Disability Living Allowance (DLA) has been a UK payment, which is being phased out and replaced.
• Adult Disability Payment (ADP), is replacing PIP and DLAs in Scotland. It is similar to PIP, but it has different processes for applications and for renewal, which are intended to treat people with more dignity than the tests used by the UK department for work and pensions.

By last autumn, there were still 80,000 people on PIP in Scotland. The Fraser of Allander Institute says that around 9% of people of working age receive some ADP, less than 4% receive PIP and less than 1% receive DLA.

Put together, the Strathclyde University economists say that nearly 14% of the working age population in Scotland are on disability benefits, other than the element that comes within Universal Credit. In England and Wales, the share of working age people on PIP is closer to 9%.

According to the Scottish Fiscal Commission, using data up to last autumn, there is a significant difference in the uptake of these benefits, which could reflect a population with worse health or that it is easier to apply in Scotland.

The figures don’t suggest a wide difference at the point of applying, but instead at the renewal stage.

With a light touch approach to checking on eligibility, only around 2% of people receiving Scotland’s ADP cease to receive it after a review, but the checks done for PIP in England and Wales lead to 16% no longer qualifying.

Ahead of Liz Kendall’s publication and Chancellor Rachel Reeves’ spring statement, the UK government rhetoric has been around the failure of the benefits system for those who use it, and the moral and economic case for getting more people into work.

Ministers are concerned about the growth in those applying and qualifying for benefits paid for disability and health conditions, and about the number of people who are not working due to long-term illness.

They want fewer people to be “economically inactive”, which would help grow the economy as well as securing more income and security for such people.

They also want to reduce the welfare bill and avert the very high costs forecast for it if current trends continue to the end of the decade.

Those trends in those claiming benefits and in the number unable to work due to long-term illness picked up considerably following the pandemic – much more than similar countries. And while older working-age people are the main ones claiming, the rise has been marked among younger adults.

If these reforms and cuts are being applied to parallel payments in England and Wales, how could this affect Scotland?

Again, it’s complicated. The reforms could reduce the bill for welfare benefits by making it more difficult to qualify for receiving PIP or the incapacity element within Universal Credit.

Or the UK government could freeze the PIP payment, reduce its value, saving the Treasury money and putting more pressure on people to work if they can.

If the UK government is putting less money into the incapacity element of Universal Credit, that will apply to Scotland in the same way as the rest of the UK, and it need not affect Holyrood.

If it puts less money into PIP for England and Wales, there would be a cut in the money transferred to the Holyrood budget.

That block grant includes the amount of money that would be spent on Scots claimants if PIP had not been devolved.

That devolved power gives the Scottish government the ability to choose whether to be more or less generous with its rules and reach for welfare benefits.

It can put more money into benefits, to avoid having to cut them for Scots. And in some cases, it mitigates the cuts made at Westminster as they affect Scots, by finding funds from other public spending.

The Fraser of Allander economists have run some numbers on what the speculation on benefit cuts might mean for Scotland.

A one-year freeze on the payments the year after next, starting in April 2026, would mean a cut in the Scottish budget by £94m in that year, rising to £122m three years later.

A tightening of rules to reduce the caseload is modelled by these economists. A squeeze that saves the Treasury £1bn would mean a cut in Holyrood’s budget of £116m. If it wants to apply sufficient cuts to find £6bn of savings, multiply that by six.

It would be up to the Scottish government to decide if it applies that cut in similar or different ways, or seeks to avoid the cut by finding money elsewhere.

That would come on top of a more generous system already in place. The Scottish government is choosing to spend considerably more than the UK government hands it to replace Britain-wide benefits.

ADP costs the Scottish government £193m more than it receives, which is money taken from other spending. That is forecast to rise to £314m next financial year and to £380m by 2029-30.

There are other benefits which have no equivalent in the rest of the UK, the biggest being the Scottish Child Payment.

That welfare regime is seen as the Scottish government having different priorities from the UK one, and devolution in action. But it comes at a price.

According to the Scottish Fiscal Commission, ministers are choosing to prioritise welfare payments by finding an additional £900m last financial year from higher taxes and from raiding other spending.

That rises to £1.3bn next financial year, 2025-26, and then to £1.5bn in 2029-30.

That is similar to the amount spent on universities in Scotland, rising close to the figure spent on Police Scotland. It’s a sizeable bite of Holyrood’s budget.

And that is before Scottish ministers and MSPs decide how much of Liz Kendall’s reforms and Rachel Reeves’ cuts they are going to apply, adapt, mitigate or somehow seek to avoid.