Social Security (Scotland) Act (2018): Devolved Social Security Assistance, Uprating for Inflation - A report in fulfilment of section 86A: Duty to consider effects of inflation

3. Policy position on uprating 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 uprate devolved social security assistance.

3.2 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.

3.3 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.

3.4 The Retail Prices Index (RPI) is still widely used in contracts but does not meet the standard required of National Statistics. The UK Statistics Authority has described RPI as “not a good measure” and found it to significantly over-estimate and at other times under-estimate inflation and has consistently urged the Government and private sector to stop using it as a measure of inflation^[12].

3.5 To complete the safe and secure transfer of existing clients from carer and disability benefits to devolved assistance, agency agreements with the Department for Work and Pensions (DWP) are required. Where there is an agency agreement in place for DWP to administer the awards of existing clients for a given form of assistance, the Scottish Ministers are committed to annually uprate that assistance at the same rate as applied by the DWP, which for 2023-24 is the annual September 2022 CPI rate (10.1%).

3.6 The September annual rate of CPI also avoids some of the seasonal volatility in price changes in the economy associated with other months of the year (e.g. December and January) and its publication in October allows its use in the Scottish Government budget process that begins shortly afterwards, ensuring sufficient funds are allocated to fund uprating of social security assistance.

3.7 The UK and Scottish economies are facing an extremely challenging period as they enter recession coupled with very high inflation - reaching a 40 year high of 11.1% in October (annual rate of CPI)^[13]. Households are experiencing significant impacts to their spending power as rises in wages struggle to keep pace with price rises in the economy and increasing inflation erodes the true value of benefit income. At 10.1% the annual rate of CPI to September 2022 is close to the peak of inflation expected during this period, with inflation expected to fall back over the course of 2023 and below the Bank of England’s 2% target by 2024^[14]. Uprating benefits by the annual rate of CPI to September 2022 means that people in receipt of benefits will receive an uplift close to the peak of inflation during this period and expected to be higher than inflation at the time uprating is applied in April 2023 (around 9%).

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