Devolved Social Security assistance: up-rating for inflation in 2024-2025

3. Policy position on up-rating of Social Security Assistance

3.1 The Scottish Government's current policy position is to use the annual rate of September CPI as the measure of inflation to up-rate devolved social security assistance. The Consumer Prices Index (CPI) is a National Statistic and has a reliable track record as a measure of inflation serving as the ONS' headline measure of inflation since March 2017. CPI is used for inflation targeting by the Bank of England and also complies with the EU standard Harmonised Index of Consumer Prices.

3.2 CPI and CPIH (Consumer Prices Index including owner occupiers' housing costs) are broadly similar measures, the only difference being that CPIH includes owner occupier housing costs and council tax. CPIH only regained its National Statistic status in 2017. As a result, it has not yet established a reliable track record as a National Statistic and official forecasts are not yet available, making policy planning and informed decision making more challenging when using CPIH. The Retail Prices Index (RPI) is still used as a measure of inflation but does not meet the standard required of National Statistics. The UK Statistics Authority has described RPI as "not a good measure" and consistently urged the Government and private sector to stop using it as a measure of inflation^[12].

3.3 The specific use of the September annual rate of CPI avoids some of the seasonal volatility in price changes in the economy associated with later months of the year (e.g. December and January). Its publication in October allows its use in the Scottish Government budget process that begins shortly afterwards, ensuring sufficient funds are allocated to fund up-rating of social security assistance, and also sufficient time to update Social Security Scotland payments system in time to pay new payment rates in April.

3.4 October 2022 saw the annual rate of CPI reach a 41 year high of 11.1%. Since then, there has been a gradual slowing of inflation and on 17 January 2024, the annual rate of December CPI was published at 4.0%. In November 2023, the Office for Budget Responsibility published their latest Economic and Fiscal Outlook^[13], forecasting that inflation will remain higher for longer than previously thought, taking until the second quarter of 2025 to return to the 2% target, more than a year later than forecasted in March 2023.

3.5 Although reporting is not required by the 2018 Act regarding the devolved benefits under UK legislation, it is being reported on to offer a fuller picture regarding the use of CPI. To complete the safe and secure transfer of existing clients from carer and disability benefits provided by DWP to benefits provided by Scottish Ministers, agency agreements with the Department for Work and Pensions (DWP) are required. Where there is an agency agreement in place for the DWP to administer the awards of existing clients for a given form of assistance, the Scottish Ministers are committed to annually up-rate that assistance at the same rate as applied by the DWP, which for 2024-25 is the annual September 2023 CPI rate (6.7%).

3.6 A full Multi-Criteria Decision Analysis in line with HM Treasury Green Book guidance has been undertaken by Scottish Government analysts and accompanies this report. This analysis assessed a range of inflation metrics and periods against a carefully chosen set of criteria to determine which approach scored most highly. This analysis concluded for 2024-25, the annual September CPI rate was the highest scoring of available options.

3.7 In summary, the CPI is considered the most appropriate inflation measure for up-rating assistance and the annual rate to September as the most appropriate period. However, the Scottish Government is committed to keeping policy on up-rating under review and will consider alternative approaches if there is a material change to inflation measures.