Social security agency in Scotland: outline business case

Executive Summary

1. Introduction

This Outline Business Case ( OBC) is for the agency for the delivery of social security in Scotland but includes how the agency aligns with the wider delivery landscape. As the OBC progresses towards a preferred option the scope narrows to that of the future Scottish Social Security Agency alone.

The OBC follows on from an options appraisal stage 1 which was completed in early 2016 and which formed the basis for an announcement by Scottish Ministers that social security in Scotland would be delivered by a new agency. It found that the agency should have close links to Scottish Ministers and be flexible enough to respond as the social security landscape in Scotland unfolds.

This OBC follows standard HMT guidance and is aligned to both the Green Book and the "5 cases" model.

The OBC should be seen in the wider context of the further devolution of powers to Scotland as currently represented by the Scotland Act 2016. The journey to date is outlined by, and forms the basis of, the strategic case. By way of context, expenditure on benefits in Scotland in 2015/16 was £18.3bn, 9.1% of the GB total. Of this 15.3%, or around £2.8bn, is to be devolved.

2. Approach

Initial work was undertaken to look at the current delivery landscape in Scotland and the form and scale of current delivery agencies. The resultant report (included as an Annex) forms the first part of the commercial case and provided initial assurance that the scale of the delivery challenge, whilst large, was manageable.

The six delivery options set out below were formulated following over 30 scenario workshops with internal Scottish Government and external stakeholders from across the benefits being devolved, possible new benefit areas and delivery focused leads. These scenario workshops asked these key stakeholders to describe the different possible things that the social security system could be doing in 2040. The focus was looking at how possible policy might translate into the physical things which might be needed in the system e.g. services, buildings, concession cards, helpline etc. This date was chosen to ensure that stakeholders were thinking about 'steady state' rather than transition.

These scenario workshops also gave these stakeholders the opportunity to frame the possible future discussion around the outcomes which the social security system would need to deliver using logic modelling based on the guidance from Evaluation Support Scotland. The outcomes from this exercise were included in the Social Security Consultation which ran up to the 28 October 2016.

In addition to following the standard HMT guidance on business cases and being aligned to both the Green Book and the "5 cases" model, the OBC is consistent with the wider approach taken by the Scottish Government in considering the wider socio-economic impacts.

3. Description of the options

Administration of social security benefits in Scotland is currently provided by the Department for Work and Pensions ( DWP). This OBC assesses the six strategic options alongside the status quo option of DWP continuing to deliver.

The options have been identified based around the eight capabilities which will be needed to deliver existing benefits being transferred to Scotland plus any new or revised benefits. These eight capabilities were broken down into 78 sub capabilities that are delivered by 15 enabling functions. What differs between the options is who delivers these functions and where these functions operate within the existing Scottish public service landscape.

The options are:

• Option 1 - The agency centrally delivers social security in Scotland;
• Option 2 - The agency delivers social security in Scotland through local offices;
• Option 3 - The agency delivers non-discretionary benefits and local authorities deliver discretionary benefits;
• Option 4 - The agency delivers cash and benefits 'in kind' as goods, services or concessions;
• Option 5 - The agency provides governance but delivery of social security is done by others e.g. via procurement or a Service Level Agreement ( SLA); and
• Option 6 - The agency provides governance but delivery is embedded in a range of existing public services.

How the options fit into the existing landscape in terms of delivering the 15 functions is illustrated by the following figure.

These options are constructed in such a way that "hybrids" that combine different aspects of different options can be constructed easily. Given the complexity of social security it is anticipated that the preferred option is likely to be a hybrid of these 6 initial options. In addition, Option 2 is broken down into two sub-options (2a and 2b) which vary the amount of processing that is undertaken locally versus centrally to illustrate the impact on costs although the socio-economic and commercial cases do not make this distinction.

These options are initially compared in terms of costs to the public sector in Scotland against a theoretical option 0 of DWP delivering on behalf of the SG. This is not a viable delivery option but is a theoretical construct and is required (in line with common practice) to act as a baseline for comparison.

The Strategic Case

The strategic case is, in essence, the political process that started with the Expert Working Group on Welfare in the run-up to the independence referendum and ended with the passing of the Scotland Act in 2016. Key milestones were the Smith Commission itself, the agreement on the Fiscal Framework between the Scottish and UK Governments and publication of the vision and principles for social security in Scotland in March 2016.

Our Vision: Social Security is important to all of us and able to support each of us when we need it

The Scottish Government issued a public consultation to inform the content of the new Scottish Social Security Bill. The consultation was in three parts, covering:

• a principled approach;
• the devolved benefits;
• operational policy.

The consultation contained a total of 234 questions. The responses to the consultation was published as A New Future for Social Security in Scotland - Analysis of Written Responses to the Social Security in Scotland Consultation ^[1] on 22 ^nd Febrary 2017. The views of the people of Scotland, as expressed in this docunment, have had a major, abiding and important infuence on how this OBC has been undertaken and on the decision that this OBC makes in terms of a preferred option.

The Financial Case

In order to provide an informed body of evidence to support the decision of what form the agency will take, and to allow a meaningful comparison of the different options, a number assumptions underpinning the presentation of the running costs in steady state have been made. These assumptions are common across the different options and include assumptions around caseloads and the costing of the functions and capabilities.

Following the development of the options, the Current Activity Based Model ( CAB-M) was developed to enable them to be costed. CAB-M is an Excel based model which uses detailed activity based information from DWP on the administration of the benefits we are receiving as part of further devolution. This activity based information from DWP is then used to estimate the activity needed for Scotland to administer the benefits going forward by applying caseload forecasts for devolved benefits in Scotland in 2020-21 to estimate steady state costs.

An important point is that digital costs are handled differently in line with HMT guidance for this area. This work is subject to significantly greater variation than the rest of the analysis and has been accompanied by detailed work exploring the specific sensitivities as well as an appropriate treatment of optimism bias.

This steady state costings work forms the basis of the financial case. The steady state costings for each option are shown in the following table. These include all costs for the agency and core Scottish Government. The figures are based on assumptions about policy decisions that may change and should not be considered as final estimates of cost. They are sensible estimates of the relative costs of the options based on a number of sensible assumptions.

	Cost Estimate
Option 0	£155m	Represents an SG estimate of the costs of the DWP calculated on an equivalent basis to the costings of the other options.

	Range of Cost Estimates
Option 1	£145m	to	£180m
Option 2a	£170m	to	£210m
Option 2b	£165m	to	£205m
Option 3	£145m	to	£180m
Option 4	£150m	to	£190m
Option 5	£165m	to	£200m
Option 6	£225m	to	£275m

The estimated DWP costs are SG estimates based on the low-level data supplied by DWP, calculated on the same basis and scaled in the same way as the options to projected caseloads for 2020-21. They are not the costs faced by DWP in Scotland at present and assumptions have been prudently made to provide a realistic baseline. The actual costs of DWP changing their systems on an ongoing basis to deliver a theoretical option 0 are unknown and crucially would be additional to the costs illustrated above. Evidence and experience tells us those additional costs would not be insignificant, and would therefore increase the cost of option 0 beyond the estimate given above.

The table shows that options 1, 3 and 4 are potentially less costly than option 0. Specific sensitivities around the breakdown of costs and the impact on overall costs, illustrate that the cost-ranking of options is not very sensitive to variations in the scale of individual cost elements. These ranges include Optimism Bias ( OB) a technique for accounting for the tendency for optimistic estimates and contingency.

The Socio-Economic Case

Standard Green Book techniques are used to assess the overall socio-economic impact of the benefit expenditure. This approach is broad and does not enable the specific delivery characteristics of each option to be monetised. This analysis is combined with the costs to form a standard cost-benefit analysis by option that allows the calculation of a Net Present Value ( NPV) (the net position taking into account the benefits and costs) and a Benefit Cost Ratio ( BCR) - the value per £1 of public spending.

	Overall NPV and BCR
	Overall NPV ((£million) BCR(= PVB/ PVC)
Option	1	2a	2b	3	4	5	6
Population growth (0.3%)	5,680 3.16	5,290 2.75	5,360 2.81	5,690 3.17	5,570 3.03	5,440 2.89	4,310 2.08
Constant population (0% growth)	5,480 3.16	5,100 2.75	5,160 2.81	5,490 3.17	5,370 3.03	5,240 2.89	4,150 2.08
O65 population (3% growth)	8,050 3.00	7,490 2.61	7,580 2.67	8,060 3.01	7,890 2.87	7,700 2.74	6,100 1.97

This analysis, although limited in its power to choose between options, is a strong demonstration of the overall value of the system - the expenditure on the benefits and the cost of doing so. In terms of the BCR, in pure monetary terms any of the options represents strong technical value for money. By way of comparison, a BCR of greater than one demonstrates that the benefits are greater than the costs and a BCR greater than around 1.3 does so whilst taking into account that government expenditure needs (to a greater or lesser extent at the UK level) to be funded by tax receipts. All options show significant "value-for-money".

Given that the characteristics of the options are complex and are not easy to capture in monetary terms, a more subtle approach to assessment - a multi-criteria analysis ( MCA) - is used to illustrate the impact on the people of Scotland of the options. Multi-criteria analysis refers to a set of techniques for comparing policy options without assigning monetary values to their impacts. MCAs are a good augmentation to Cost-Benefit Analysis where there is insufficient information about monetary values or deriving those is impractical. In this specific case the analysis is able to distinguish between the options in a way that would not otherwise be possible. A MCA can take several forms but the approach followed in this OBC is to rank each of the six options against a number of criteria.

The criteria for the MCA, which were developed from a range of sources including the strategic case and shortlisted with the help of stakeholders, were grouped into the following five broad sets:

• Dignity and Respect
• Equality and Poverty
• Efficiency and Alignment
• Implementability and Risk
• Economy and Environment

Each broad set has numerous sub-criteria resulting in 27 individual criteria. Information was gathered via several different channels, including responses to A New Future for Social Security - Consultation on Social Security in Scotland, separate stakeholder engagement processes and internal expertise. This information was analysed and used to create the rankings of options against each individual criterion. These were then aggregated to give a score against each of the five criteria sets. The results are summarised in the Figure below and form the basis of the socio-economic case.

The RADAR diagram above shows options that are preferred on each criteria being further away from the centre. The multi-criteria analysis strongly suggests that option 1 or option 2 represent the best scoring options across the five criteria overall. Option 4 - the addition of in-kind distribution to option 1 - can be explored further as a potential bolt-on but does not make a strong case to be considered on its own. Option 6 has some advantages around medical or face-to-face assessments. This was of particular importance to many of the respondents to the social security consultation.

The Commercial Case

The commercial case includes a report on comparator agencies that illustrates that whilst the scale of the delivery challenge is high, there are already bodies within Scotland that act on a similar (if not identical) scale. The main part of the commercial case is an assessment of the commercial risk of the options (see table below) that concludes that option 1 and option 4 are the easiest to commercially deliver and that option 5 is the most difficult.

Option	Commercial Risk Rating
Option 0 - DWP continues/Do nothing.	High
Option 1 - The Agency centrally delivers social security in Scotland.	Medium
Option 2 - The agency delivers social security in Scotland through local offices.	Medium - High
Option 3 - The agency delivers most benefits, but local authorities provide the face to face contact for the social security system and additional benefits based on local need.	Medium - High
Option 4 - The agency delivers cash and benefits in kind as goods, services or concessions.	Medium
Option 5 - The agency provides governance but the delivery of social security is done by others e.g. via procurement or a service level agreement.	Very High
Option 6 - Social security is embedded in a range of existing public services with the agency providing governance.	Medium - High

The Management Case

The purpose of this Management Case is to provide confidence that recognised project management methods and robust governance arrangements are planned or in place in order to deliver this specific project to time, cost and quality. Recognising that this project is pre- OBC decision, and represents the process of reaching a preferred option, the management arrangements articulated in this Case are appropriately generic and high level. Whilst the project is the agency, the nature of the decision path to the preferred option has meant that there is a wider discussion within this document. The management case should be considered as relating to what has been put in place to allow the preferred option to be taken forward from this point. This is wider than the agency itself but narrower than the entire system.

The Management Case largely responds to the question of achievability for the programme as a whole for which the Agency is the key component. It is important to note that, for this OBC, it has been written in an 'option agnostic' fashion, and recognises the significant delivery capabilities and management strategies that the wider programme will provide. Such programme-level capabilities will be assessed against industry best practice ( e.g. P3M3) to ensure they are, and remain, fit for purpose. As such, the Management Case is purposely generic.

The programme has acquired a number of highly skilled transformation specialists and is utilising their extensive experience in order to help direct and govern the Programme, and ultimately to ensure that the strategic outcomes are realised. A dedicated HR Partner Manager has been embedded into the programme, as well as actively recruiting for a fulltime Resource and Asset Manager. Also, early recruitment of the Agency's senior management team will help ensure appropriate sponsorship and ownership.

The programme has initiated a significant 'Lessons Learned' activity where individuals with project and programme experience within the public sector in Scotland can share their (relevant) 'Gone Well' and 'Not Gone Well' experiences. Furthermore, the programme will place all of its arrangements under continual improvement, and will seek to regularly learn from and share any new lessons.

Whilst the enormity of the task to create a fully capable and compliant agency should not be underestimated, there is no known 'show stopper'.

Towards a preferred option

The next stage was to bring all five cases together.

The multi-criteria analysis ( MCA) in the Socio-economic case strongly suggests that option 1 or option 2 represent the best scoring options across the five criteria overall. In terms of costs in the Financial case option 1 and option 3 are very similar but option 3 scores considerably lower on all of the criteria except "Implementability and risk" in the MCA.

The strategic case demonstrated the importance placed by Ministers on the dignity and respect criteria but also the importance of a smooth transition from the existing system. Option 1 scores somewhat weaker than option 2 on the first of these and weaker than option 3 on the second.

The commercial case rates option 1 as the lowest (medium) risk along with option 3 with option 2 being rated as medium high. The commercial case confirms the ruling out of options 5 and 6 via the MCA or on costs grounds due to high commercial risks. Whilst the managerial case does not specifically rule out any option it does suggest the scale of the task and reinforces the strategic case around the importance of Implementability.

In conclusion, out of the 6 options it is clear that option 1 represents the best value. It is the joint lowest cost and scores overall best in both the socio-economic and commercial cases.

However, aspects of the strategic case suggests that some areas where option 1 does less well than other options are important. Specifically, these are some aspects of Dignity and Respect around the availability of local support (from option 2), easier Implementability (in some respects) of option 3 and the importance of a high quality system of assessments (the processes by which eligibility for benefits is determined) that could draw on a range of possible alternatives.

Based on above the following three Hybrid options were constructed for both the system and for assessments. The three hybrid options for the delivery system considered are:

• Hybrid X - a central agency with enhanced phone and online support, which incorporates face-to-face pre-claims and support services locally in existing public sector locations (a variant of option 1)
• Hybrid Y - a local agency model with one central and 8 local offices providing face-to face pre-claims and support and local caseload processing (a variant of option 2)
• Hybrid Z - a local agency model with one central and 32 local offices providing face-to face pre-claims and support and local caseload processing (a variant of option 2)

The three models of assessment are:

• Model MA1 - Mobile agency staff conduct face-to-face assessments in people's homes and document-based assessments remotely.
• Model MA2 - Agency staff conduct assessments in fixed office locations, which are existing health and social care settings (under Hybrid X) or agency's local offices (under Hybrids Y and Z).
• Model MA3 - Existing NHS professionals sign up to be part of an assessment pool and are paid hourly by the agency for both face-to-face and document-based assessments.

The assessment hybrids can be utilised as part of any of the delivery hybrids. It should be noted that the additional analysis of the assessment hybrids should not be thought of as excluding any other options at this stage. This is because the optimum form of assessments is dependent on policy decisions that have yet to be made.

The hybrids were costed and the costs are shown below. For Implementabilty reasons, local authorities remain in control of existing social security powers and the costs are presented in terms of the agency only (core Scottish government costs are excluded). Sensitivity analysis is also shown (Monte Carlo simulation is a technique for examining the sensitivity of cost estimates to changing assumptions).

Costs of the hybrids, under the current set of modelling assumptions (average cost after Monte Carlo simulation presented)

The figure below shows the uncertainty in these estimates, showing graphically that the distribution ranges from a low of around £130m to a high of about £190m. Again, these are not budget figures, they simply represent best estimates of the likely costs of different delivery models, and exist as an aid to decision-making, where the difference between the estimates is more important than their absolute level.

Costs of the hybrids (point estimate from CAB model, with 5 ^th percentile, mean and 95 ^th percentile costs from Monte Carlo simulation)

The MCA analysis is repeated for the hybrids (accounting for the fact that the differences between the hybrids is much smaller than the differences between the original options).

Delivery hybrids

Assessment hybrids

It is worth noting that the 3 delivery hybrids already reflect the evidence within the strategic, commercial and management cases so the focus in moving to the preferred option is based on the MCA (or socio-economic case) results and the financial implications.

The analysis above is conclusive for the choice of delivery hybrid as hybrid X stands clear from the other two options. It is the best overall in terms of the MCA analysis and it has the lowest cost. As such, hybrid X should be considered the preferred option for the delivery structure of the agency.

Given the complex nature of the delivery landscape across Scotland, the choice of hybrid X as the preferred option for the basic form of the structure should not preclude adaptation to specific local needs. For instance, existing public sector locations may be limited in some areas so the agency could explore alternative options such as a mobile workforce or mobile offices or consider the use of a limited amount of its own offices if there would be strong local value.

The situation with assessments is much more complicated. Each of the three hybrids have advantages and disadvantages. Although the use of NHS professionals in hybrid MA3 is more expensive and is harder to implement when faced with the current situation it has advantages that could be developed in the context of wider change.

The optimum choice of assessment process will be dependent on decisions that are yet to be made around policy and practice. As such it is too early at this OBC level to reach a preferred option for assessments. All three assessments models examined as part of this section and indeed other variants which could include contracting to an external organisation could be implemented with any of the three hybrid options and with the preferred hybrid x in particular. This refines the preferred option overall, at this stage, to:

Preferred option - a central agency with enhanced phone and online support, which incorporates face-to-face pre-claims and support services locally in existing public sector locations and with assessments undertaken in a manner that is appropriate for policy choices that will be made as the final business case is progressed.

Estimates of the required staffing for this preferred option are subject to considerable variation based on detailed decisions yet to be made but it is reasonable to suggest that the central agency will be directly responsible for at least 1500 jobs (Full Time Equivalents) with a number of additional staff in other locations.