Building a New Scotland: Social security in an independent Scotland

Introduction

With independence, Scotland would have the opportunity to design a social security system as an integral part of a fairer more equal society. A new approach would be designed in line with the current social security principles – a human rights-based system, delivered with dignity, fairness and respect.

Social security is a shared investment in everyone in society, offering essential support at different stages of life. It supports us when we are on low incomes or seeking paid employment, when we are unable to take up paid work because of caring responsibilities or when we have additional costs due to sickness or disability. It is a safety net that any one of us might need to call upon at some point to help cope with a range of normal life events.

Independence would offer the opportunity to deliver an integrated social security system which aligns with wider aspirations to tackle health, social and economic inequalities – to be a fairer, more equal Scotland.

Social security – myths and misconceptions

It is essential that any debate over the future of social security is properly informed by an understanding of what such systems achieve and who benefits from them.

Unfortunately, the debate has been confused over many years by deeply embedded myths and misconceptions about how social security operates in the UK and in whose interests. These include:

• significant misconceptions about where money is spent. Recent research found that ‘the British public have low levels of understanding of the benefits system, primarily in ways that seem likely to undermine public support. People wildly overestimate unemployment benefits compared to pensions, the value of unemployment benefits and misperceive trends in claims.'^[1]
• the mistaken belief that benefit fraud is widespread. When people are asked what proportion of the total of benefits and tax credits was claimed fraudulently, the average tends to be in the range of 24-27%.^[2] However, DWP estimate that the rate of fraud overpayments in financial year ending 2023 was in fact 2.7%. The rate of underpayments was 1.4%.^[3]
• a widespread assumption that social security spending goes on an unchanging group when, in fact, there is significant churn. People spend less time unemployed, or in poverty, than commonly believed. More importantly, there is an under-appreciation that ‘many more people benefit from the operation of the welfare state [including pensions and the NHS, for example] than are affected by narrowly selected parts of it at any one time – indeed, nearly all of us do.'^[4]
• The perception that people in poverty, and receiving benefits, must be out of work. In fact, more than half (57%) of working-age adults in relative poverty after housing costs in 2019-22, were living in a household where someone was in paid work.^[5] Low pay is a major driver of social security costs.

Widespread myths and misconceptions are likely to lead to society making poor choices. If people hold these misconceptions about social security, they are unlikely to support increases in benefits. Similarly, if people believe that those who are unemployed are choosing to spend long periods out of work and that fraud is much more prevalent than it really is, they are likely to condone an increasingly punitive sanctions regime.

In fact, we all have a large stake in a high-quality social security system, particularly thinking about it in its broadest sense. To understand in whose interests it operates and who benefits from it, it is important to think about how our lives change over time. There are specific social security entitlements for people who are sick and disabled; for people who are caring for sick or disabled friends and family; children and families and those in work and on low incomes.

For those who are able to work, there are movements in and out of paid work, and incomes vary for many from week to week, month to month and over the life cycle, that sometimes require top-up support. This was particularly noticeable during the pandemic.

Any of us could need to give up paid employment – to look after a disabled child for example – or if we become ill and have to stop work. Disabled people, unpaid carers and those with long- term health conditions are likely to have increased costs for specialist equipment, accessible travel or simply the costs of running equipment at home. When we reach State Pension age, the state provides a regular income for all those eligible, with the State Pension being the largest single item of social security spending in the UK.^[6] And there are a range of benefits aimed at supporting older people in their later years. Note that pension-age benefits, which are part of the social security system, will be covered in more detail in a separate paper later in the ‘Building a New Scotland’ series.

Despite the persistence of some social security myths, there are some positive signs of change. Recent evidence shows that ‘anti-welfare’ attitudes have been in substantial decline since 2010.^[7] The most recent Scottish Social Attitudes report showed that the majority of people in Scotland think that spending on social benefits should be increased and that most people agree that income should be redistributed from the better-off to those who are less well off.^[8] This is likely due to a number of factors including perceptions of higher UK poverty levels and less generous social security benefits. And since 2016, the Scottish Government has been shaping its own social security system, demonstrating that a different, human rights-based approach – delivered with dignity, fairness and respect – is possible and can bring positive outcomes.

This is the backdrop to the proposals for social security in an independent Scotland that will be laid out across the following sections.

The structure of this paper

This paper’s analysis and proposals are set out in four main parts.

The social security in the UK section looks at the current system. It begins with an overview of the UK’s current social security system. It summarises changes the UK Government has made in recent years, a period marked by austerity and welfare cuts and compounded by the impact of the Covid-19 pandemic and the ongoing cost of living crisis. It considers the impact of these changes on poverty and inequality as well as the impact on the wider economy.

The section on Scotland’s social security system – a new approach sets out the progress that has already been made in establishing a new social security system in Scotland with the powers devolved to the Scottish Parliament – a system based on dignity, fairness and respect.

The section on social security in an independent Scotland describes how, with the full powers of independence, Scotland could build on those achievements in the years ahead. It also discusses issues relating transition. It then sets out changes that could be made relatively quickly on independence to address some of the main concerns with the UK system.

The section on considerations and choices for a future social security system describes the interactions between social security, a fair and more equal society, the economy and the labour market. It then sets out a range of high-level models of social security that an independent Scotland could adopt.

It also sets out a longer-term direction, a vision for how a comprehensive Scottish social security system, with a focus on wellbeing and adequacy would support a cohesive society and a vibrant dynamic economy and what this might ultimately look like, including a Minimum Income Guarantee.

The paper ends with a section setting out conclusions.