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Welfare reform – what are the possibilities?

May 7, 2015

Most Western EU countries have a welfare system that the population supports. They are based on social insurance systems which are contributory. There are safety nets for those who cannot contribute. But the essence of them all is that if you are too ill to work you get supported financially to a reasonable level. Rehabilitation is also a feature of such schemes and the working age population gets this through their mutual or private schemes. The post war UK welfare system was originally a contributory scheme with a safety net too. As we head for implementation of Universal Credit (UC) we are approaching a final destination where, for most people, the contributory element will disappear. The rationale is the complexity of our benefit system, the gradual reduction of the value of the contributory element, and the side effect that “work does not pay”. But if that is the question, why is total means testing the solution? The other route would be to move to a mix of mutual and private income protection insurance.

Welfare reform is like painting the Forth Bridge, it takes such a long time that by the time you have finished doing it, you have to start again. Post election may be the time. And appropriately it could start in Scotland. The “Command Paper” to be enacted post election – Scotland in the United Kingdom: an Enduring Settlement sounds like an oxymoron to me. Plans to give Scotland more extensive welfare powers were removed from the Smith Commission’s report in the final days of negotiation. It originally included devolving the power to vary all the main elements of Universal Credit, which could have enabled Scotland to design its own welfare system. Instead what we have allows Scotland to change the calculation of housing costs covered by Universal Credit. That would allow them to abolish the “bedroom tax”. Beyond that the housing element will however remain an integral part of UC so, for example, they cannot amend the rate at which benefit is withdrawn as income rises. Disability benefits to be devolved include Industrial Injuries Disablement Benefit (IIDB) and Severe Disablement Allowance (SDA). The reason for devolving SDA is unclear since SDA has been closed to new claims since 2001 and the remaining working-age SDA claimants are being reassessed for Employment and Support Allowance. What is more, the current welfare reforms, including the introduction of Personal Independence Payments, will not be postponed pending further devolution of powers. The Smith Commission’s report stated that the Scottish Parliament would have powers to create new benefits “in areas of devolved responsibility”. However the power to create new benefits applies only to devolved areas of welfare responsibility – ie not much freedom at all. Finally we have an area that is incomprehensible concerning the benefits cap. Scotland will be able to pay an additional sum to override the cap but what would the eligibility criteria be? No one knows.

Let’s fast forward to the election. Labour have said they will pause UC and audit it. But beyond that we are left guessing. However, imagine they win but can only form a Government with the support of the SNP. This could well provide an opportunity for some much more radical thinking. I cannot see them favouring private “profit making” insurance solutions – but mutuals regulated by the Scottish State – maybe yes. As for a return to the contributory principle and against means testing as the dominant systems – I can see that might be attractive. Maybe it is time to start re-painting the Forth Bridge, and in Scotland of course.

Written by Richard Walsh. First published in Cover Magazine, March 2015

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