Welfare reform: annual report 2018

7. ANNEX II

Methodology and supplementary tables

The financial impact of UK Government welfare reforms since 2010 has been estimated following the approach used in last year’s Welfare Reform Report, with revisions made where new data has become available. ^[163] Our estimate of the total financial impact of welfare reforms is comprised of 2010-2015 Coalition Government reforms and post-2015 Conservative Government reforms.

Coalition Government reforms

The financial impact of Coalition Government reforms was costed by OBR (2016) at Great Britain ( GB) level. ^[164] These estimates are available for 2015/16 and 2020/21. Scottish Government analysts have estimated the impact of these welfare reforms on Scotland using Scottish shares of GB benefit expenditure and benefit caseload. This report uses estimates from last year’s report of the Scottish share of the 2015/16 impact of Coalition reforms, which were based on 2015/16 data. However, it revises the Scotland share of the OBR’s 2020/21 estimates using the most recently available data. To estimate the financial impact of welfare reforms between 2015/16 and 2020/21, we scale the difference between the 2015/16 and 2020/21 estimates so that the additional financial impacts gradually accumulate over the intervening period.

Table A1 presents Coalition Government welfare reforms which have an effect in 2020/21, alongside the method used to scale the financial impact of this reform to Scotland level.

Table A1 – Coalition Government welfare reforms

These reforms use a Scottish share of GB benefit expenditure or caseload, to match the spatial level of the OBR’s analysis, which was conducted at GB level. Notably, the fact that the OBR estimates were conducted at GB level means figure 3 in the main report underestimates the full financial impact of welfare reforms across the UK since 2010 by excluding the impact on Northern Ireland. This approach was taken because the financial impact of Conservative Government reforms is reported at UK-level in HM Treasury policy costings. Reporting the aggregate financial impact of both Governments reforms as UK-level therefore represents a conservative approach which does not overstate the impact of reforms. However, because we use policy-by-policy Scottish shares which consider the spatial scale of the original estimate, this does not affect our estimate of the financial impact of Coalition Government welfare reforms on Scotland.

Conservative Government reforms

The 2015 – present Conservative Government reforms are based on UK-level estimates from HM Treasury Budget Policy Costings. These estimates present the financial impact of each policy between 2016/17 and 2020/21. ^[165] The UK-level impact of the benefit freeze has been revised based on Resolution Foundation estimates. ^[166] The UK-level impact of the Benefit cap is based on the estimated financial impact calculated in DWP’s impact assessment for the policy. ^[167]

Since last year’s report, several planned UK Government welfare reforms have been cancelled. These are the removal of Housing Benefit from 18-21 year olds, the capping of social housing rents to Local Housing Allowance rates and the ending of Pay to stay. In addition, two new reforms which did not feature last year are now included. These are the removal of the seven day waiting period for UC payments and improvement of UC advance payments, and the decision to give new UC claimants who were receiving HB two additional weeks of HB entitlement.

Our analysis scales UK-level costings using the most recently available data from UK Government sources to find the Scotland-level impact. Table A2 presents the Conservative Government welfare reforms since 2015 alongside the method used to scale the financial impact of this reform to Scotland level.

Table A2 - Conservative Government measures

We primarily use 2016/17 outturn data from UK Benefit expenditure and caseload tables to estimate the Scottish share of UK means-tested welfare spending. We then use this to assign a Scottish share of UK expenditure changes to the benefit freeze and changes to the seven day waiting period and advances in UC. Our analysis estimates the Scottish share of UK spending on Child Benefit, Tax Credits, Housing Benefit, Income Support, Jobseeker’s Allowance, Employment and Support Allowance and Universal Credit. The components of our Scottish means-tested benefit expenditure share are shown in table A3.

Table A3 – Scottish shares of mean-tested benefits spending

Table A4 presents the estimated financial impact of Conservative Government welfare reforms at the UK-level.

Table A4 - The financial impact of welfare reforms introduced by the Conservative Government since 2015 at UK level

Green boxes indicate welfare reforms that increased benefit generosity rather than reduced it. The most significant negative impacts at UK level are the benefit freeze, the reduction in the Work Allowance and the two child limit policy. The latter two are discussed in sections 4.6.3 and 3.2.2 of the main report respectively. These estimates were scaled down to a Scotland level using the Scottish shares in Table A3. Table A5 presents our estimate of the Scotland level financial impact of Conservative Government welfare reforms.

Table A5 – The financial impact of welfare reforms introduced by the Conservative Government since 2015 at a Scotland level

As in table A4, green boxes indicate welfare reforms that increased benefit generosity rather than reduced it. The most impactful policies are broadly the same as those at Great Britain level. Although already large by 2018/19, the impact of many reforms only increases over time — between 2018/19 and 2019/20, the cuts increase by almost 50%. The size of some cuts, notably the 2CL and removal of the family element, will increase long past the 2020/21 cut-off of this table.