Welfare reform: annual report 2019

7. Annex A – The methodology used in our spending reduction modelling

Our modelling examines the effect of a variety of social security policy changes on welfare spending using the Scottish Government’s in-house microsimulation model, based on Family Resource Survey (FRS) data. A baseline scenario of the existing, post-welfare reform policy environment was compared to four counterfactual scenarios in which major benefit cuts did not take place. These scenarios covered:

• the absence of the benefit freeze;
• UC taper rates remaining at 65%, while 2015/16 UC work allowances were simply uprated by CPI;
• an absence of changes to the UC first child premium, and non-introduction of the two-child limit; and
• the combination of each of the above scenarios.

The modelling uses the following assumptions:

• The analysis is based on data from the 2016/17 FRS.
• The spending reductions estimated are presented in 2019/20 terms.
• UC has been fully rolled out. In reality this is expected to be completed during the 2023/24 financial year. 
• UC and Child Benefit (CB) are fully taken up by all people entitled to them. In reality not everyone who could potentially be affected by the cuts will claim the benefit, meaning our estimates will be towards the higher end of the potential impacts.
• Tax and benefit rates are set to 2019/20 levels. 
• The two-child limit and removal of first child premium are applied to children who will be under seven in 2023/24 (when the migration to UC is scheduled to be completed).
• The spending reductions reported are limited to those occurring through either UC or CB. This means that some other sources of spending reduction, such as freezing of contribution-based benefits or local housing allowances for pensioners, are not included.