Up-rating devolved Social Security assistance: multi criteria decision analysis - January 2024

Scoring of Options

55. The following provides an explanation of the scores allocated to each option.

A. September CPI

Robustness scored Very High (5)

• CPI is robust because it is an established headline measure of inflation and has a proven track record as a National Statistic.
• This is an outturn rate of inflation that has occurred.

Relevance scored Medium (3)

• This measure reflects the change in the general level of prices faced by all consumers, but does not include owner-occupier housing costs such as council tax. There are measures that could be more fully reflective of price changes faced by benefit clients.
• September is approximately 6 months away from April, when uprating is applied. When inflation is increasing quickly it may mean assistance is uprated by a lower amount than inflation faced by clients at the time of uprating. However, when inflation is falling, clients would gain from higher uprating the following year as uprating exceeds inflation.
• Using this option this would mean benefits increasing in value by around 0.9% over the past 4 years (see Annex A1), so matching inflation quite closely.

Delivery scored Very High (5)

• CPI is published as a single rate which can easily be applied to uprate assistance and future years are officially forecast by OBR which is useful for robust financial planning.
• September’s rate is published in October allowing sufficient time for uprating processes to be carried out (scrutiny of regulations, implementation of changes to payment systems etc.).

Transparency scored Very High (5)

• CPI is easy for stakeholders to access and interpret as underlying data is routinely reported by ONS and is reported widely in the media.

B. January CPI

Robustness scored Very High (5)

• CPI is robust because it is an established headline measure of inflation and has a proven track record as a National Statistic.
• This is an outturn rate of inflation that has occurred.

Relevance scored Medium (3)

• This measure reflects the change in the general level of prices faced by all consumers, but does not include owner-occupier housing costs such as council tax. There are measures that could be more fully reflective of price changes faced by clients.
• January is closer to the time of uprating in April than September. So when inflation is increasing quickly it should mean assistance is uprated by a figure closer to the rate faced by clients at the time of uprating. However, when inflation is falling, clients would likely experience lower uprating in the following year than when using September.
• Although the time period would be closer to April than September, using this option would mean benefits decreasing in value by around 1.1% over the past 4 years (see Annex A1).

Delivery scored Very Low (1)

• CPI published as a single rate which can easily be applied to uprate assistance and future years are officially forecast by OBR which is useful for robust financial planning.
• January’s rate (published in February) may cause issues as it is unlikely to be available in time for the Scottish budget^[29]. Additionally, it may cause significant issues to fulfil the uprating process including the laying of regulations and Section 86A report, and official scrutiny.
• The timing of its release might also cause difficulties for implementing the rates in payment systems by the beginning of April and ensuring clients do not get paid late. This may also have a negative impact on the current timetable to deliver change and improvements to existing products, systems and technology.

Transparency scored Very High (5)

• CPI is easy for stakeholders to access and interpret as underlying data is routinely reported by ONS and is reported widely in the media.

C. Forecast CPI

Robustness scored Low (2)

• CPI is robust because it is an established headline measure of inflation and has a proven track record as a National Statistic.
• A forecast is not as robust as outturn data because it is based on assumptions and projections that may not transpire rather than inflation that has occurred.
• An inflation forecast that over-estimates price increases would mean clients receive uplifts greater than true inflation and a forecast that under-estimates price increases would result in uprating being lower than true inflation.

Relevance scored Medium (3)

• This measure reflects the change in the general level of prices faced by all consumers, but does not include owner-occupier housing costs such as council tax. As a universal measure it may not be fully reflective of price changes faced by clients.
• A forecast is relevant as it relates to the period uprating is applied. However, the forecast rate may not transpire and could be higher or lower than realised inflation.
• Using this option would mean benefits decreasing in value by around 2.0% over the past 4 years (see Annex A1), demonstrating how benefit clients could lose out when inflation is under-forecast.

Delivery scored Very High (5)

• CPI forecast published as a single rate which can easily be applied to uprate assistance and future years are officially forecast by OBR which is useful for robust financial planning.
• Official OBR forecasts normally published in November are likely to be available in time for uprating process (scrutiny of regulations, implementation of changes to payment systems etc.).

Transparency scored High (4)

• CPI forecasts are publicly available through OBR’s forecast reports however these are likely to be less well known, understood and accessible to the general public, compared with headline inflation measures (e.g. CPI and CPIH) published by the ONS.

D. Forecast and re-base CPI

Robustness scored Medium (3)

• CPI is robust because it is an established headline measure of inflation and has a proven track record as a National Statistic.
• A forecast is not as robust as outturn data because it is based on assumptions and projections rather than inflation that has occurred. Forecast inflation could be higher or lower than realised inflation. However, re-basing rates with outturn inflation corrects deviations between forecast and realised inflation rates.
• However there is a risk to government finances if inflation forecasts turn out to be much higher than realised inflation and uprating could only be reconciled by reducing devolved social security assistance rates, which may not be possible under legislation. This could mean benefit clients would receive uprating above true inflation.

Relevance scored High (4)

• This measure reflects the change in the general level of prices faced by all consumers, but does not include owner-occupier housing costs such as council tax. As a universal measure it may not be fully reflective of price changes faced by clients.
• A forecast is relevant as it relates to the period over which uprating is applied.
• Under this approach, if realised inflation was lower than the last uprating, in the next uprating round, benefit clients will experience a negative adjustment to account for any “over-payment” in the previous period.
• Since we don’t yet have out-turn inflation for April 2024, the real terms change estimated in Annex A1 is based on a comparison between forecast and out-turn inflation for April 2023 and is illustrative only.
• Over the long term nominal benefit rates should be aligned with April inflation.

Delivery scored Very High (5)

• CPI published as a single rate which can easily be applied to uprate assistance and future years are officially forecast by OBR which is useful for robust financial planning.
• Official OBR forecasts normally published in November are likely to be available in time for uprating process (scrutiny of regulations, implementation of changes to payment systems etc.).

Transparency scored Medium (3)

• Although CPI forecasts are publicly available through OBR’s forecast reports, the re-basing would be subject to an internal calculation. This may be difficult for clients and stakeholders to anticipate and would be less accessible than published figures. This could be partly mitigated by Scottish Government publishing details of the calculation.

E. September CPIH

Robustness scored Very High (5)

• CPIH is a leading measure of inflation and was designated as a National Statistic in 2017.
• This is an outturn inflation rate determined by inflation that has occurred and therefore is robust.

Relevance scored Medium (3)

• This measure reflects the change in the general level of prices faced by all consumers including owner-occupier housing costs such as council tax. As a universal measure it may not be fully reflective of price changes faced by clients.
• September is approximately 6 months away from April, when uprating usually occurs, so it may not be a good representation of inflation faced by clients between uprating periods.
• Using this option would mean benefits increasing in value by around 0.5% over the past 4 years (see Annex A1), a close match with inflation.

Delivery scored High (4)

• September’s rate will be published in October allowing time for complete uprating process (scrutiny of regulations, implementation of changes to payment systems etc.).
• CPIH is published as a single rate which can easily be applied to uprate assistance but is not officially forecast. This does not easily enable robust financial planning. However, CPI forecasts could be used as a proxy.

Transparency scored Very High (5)

• CPIH is easy for stakeholders to access and interpret as underlying data is routinely reported by ONS and is reported widely in the media.

F. January CPIH

Robustness scored Very High (5)

• CPIH is a leading measure of inflation and was designated as a National Statistic in 2017.
• This is an outturn inflation rate determined by inflation which has occurred and therefore is robust.

Relevance scored Medium (3)

• This measure reflects the change in the general level of prices faced by all consumers including owner-occupier housing costs such as council tax. As a universal measure it may not be fully reflective of price changes faced by clients.
• January is closer to April than September but may still not be a very good representation of inflation faced by clients between uprating periods. When inflation is high and volatile, there can be substantial differences between January and April rates.
• Using this option would mean benefits decreasing in value by around 1.1% over the past 4 years (see Annex A1).

Delivery scored Very Low (1)

• CPIH published as a single rate which can easily be applied to uprate assistance but is not officially forecast. This does not enable robust financial planning.
• January’s rate (published in February) may cause issues as it is unlikely to be available in time for the Scottish budget and also may cause timings issues to fulfil the complete uprating process, including laying of regulations and Section 86A report in parliament, and official scrutiny.
• The timing of its release could cause difficulties for implementing the rates in payment systems by the beginning of April and ensuring clients do not get paid late. This may also have a negative impact on the current timetable to deliver change and improvements to existing products, systems and technology.

Transparency scored Very High (5)

• CPIH is easy for stakeholders to access and interpret as underlying data is routinely reported by ONS and is reported widely in the media.

G. September Household Costs Index (Decile 2)

Robustness scored High (4)

• ONS have been developing Household Costs Indices since November 2017 and officially launched them on 4 December 2023. The indices will be published quarterly and are intended to complement lead measures of inflation CPIH and CPI by providing insight into the inflationary experience of different household subgroups.
• This data is not classified as national statistics but experimental and so ONS advise a degree of caution when using these statistics.
• This is an outturn inflation rate determined by inflation which has occurred and therefore is robust.

Relevance scored High (4)

• This metric is more specific to low-income benefit client households than a universal measure.
• However, clients are not always in the lowest equivalised income quintiles (e.g. for non-means tested disability benefits) so the rate may not be relevant to all benefit clients.
• September is approximately 6 months away from April, when uprating usually occurs, so it may not be a very good representation of inflation faced by clients between uprating periods.
• Using this option this would mean benefits increasing in value by around 2.3% over the past 4 years (see Annex A1).

Delivery scored Low (2)

• September’s rate should be published in December which should allow time for complete uprating process (scrutiny of regulations, implementation of changes to payment systems etc.).
• The publication schedule of these statistics is designated as quarterly but they are relatively new so there is a risk this could change and there is an element of uncertainty about when this data and the periods covered will be published.
• Household Costs Indices are not forecast. This does not easily enable robust financial planning.

Transparency scored High (4)

• The metric is published by ONS and is relatively easily accessible, however, it is likely to be less well known, understood and accessible to the general public, compared with headline inflation measures (e.g. CPI and CPIH) published by the ONS.

H. December Household Costs Index (Decile 2)

Robustness scored High (4)

• ONS have been developing Household Costs Indices since November 2017 and officially launched them on 4 December 2023. The indices will be published quarterly and are intended to complement lead measures of inflation CPIH and CPI by providing insight into the inflationary experience of different household subgroups.
• This data is not classified as national statistics but experimental and so ONS advise a degree of caution when using these statistics.
• This is an outturn inflation rate determined by inflation which has occurred and therefore is robust.

Relevance scored High (4)

• This metric is more specific to low-income benefit client households than a universal measure.
• However, clients are not always in the lowest equivalised income quintiles (e.g. for non-means tested disability benefits) so the rate may not be relevant to all benefit clients.
• December is closer to April than September but may still not be a very good representation of inflation faced by clients between uprating periods. When inflation is high and volatile, there can be substantial differences between December and April rates.
• Using this option this would mean benefits increasing in value by around 0.9% over the past 4 years (see Annex A1).

Delivery scored Very Low (1)

• December’s rate (published in February) may cause issues as it is unlikely to be available in time for the Scottish budget and also may cause timings issues to fulfil the complete uprating process, including laying of regulations and Section 86A report in parliament, and official scrutiny.
• The timing of its release could cause difficulties for implementing the rates in payment systems by the beginning of April and ensuring clients do not get paid late. This may also have a negative impact on the current timetable to deliver change and improvements to existing products, systems and technology.
• Household Costs Indices are not forecast. This does not easily enable robust financial planning.

Transparency scored High (4)

• The metric is published by ONS and is relatively easily accessible, however, it is likely to be less well known, understood and accessible to the general public, compared with headline inflation measures (e.g. CPI and CPIH) published by the ONS.

Ranking of Options

Results

56. Option A, September CPI scored highest across the defined criteria and is therefore the recommended policy option.

57. See Annex C for sensitivity analysis.