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Scotland Analysis (Work and Pensions)

Volume 579: debated on Monday 28 April 2014

I laid before the House on 23 April 2014 the latest paper in the Government’s Scotland analysis programme, “Scotland analysis: Work and Pensions”. This series of publications is designed to inform the debate on Scotland’s future within the United Kingdom ahead of this year’s referendum.

The paper sets out why a UK-wide social security system and labour market works well for Scotland. It considers how the UK’s broad tax base ensures Scotland benefits from secure and stable funding and how by pooling resources, variations in demand for social security support in one part of the UK can be absorbed without varying the levels of funding received by individuals. It sets out how by remaining in the UK both the higher levels of social security expenditure in Scotland and future costs pressures from an ageing population are more affordable.

In the future the number of pensioners is predicted to increase, and cost pressures will increase accordingly. The paper highlights that an independent Scottish state would face a more acute challenge than the UK as a whole, both from demographic change, and its ability to absorb the impacts from a narrower tax base. The paper finds that an independent Scottish state could face additional social security costs rising to around £1.55 billion per year over the next 20 years (in today’s terms) as a result of demographic changes and policy commitments by the current Scottish Government. This would result in a total increased cost of around £450 per working-age person per year in Scotland over the next 20 years, than if spending per working-age person was at average UK levels.

The paper also sets out how an independent Scottish state would also face costs and complexity from unpicking the UK’s integrated social security infrastructure. It explains there would be costs in developing and setting up new systems while running costs could increase as economies of scale are lost. The UK Government would do nothing to put at risk the continuity of payments to their own citizens and would not be prepared to incur significant costs to change IT systems to cater for a different approach in Scotland. The paper also finds that if Scotland does not use sterling as its currency, it would not be possible to share a benefit system even for a transitional period.

The paper concludes that Scotland’s citizens and employers benefit from being part of the UK and the UK benefits from having Scotland as part of it.