Stage one report on the Social Security (Scotland) Bill: Scottish Government response

Financial Memorandum

Budgetary Risks

The Scottish Government is requested to provide further detail on arrangements it is putting in place to manage the new budgetary risks in its response to this report.

109. The Scottish budget has historically included expenditure that is demand-led. Whilst this has not been of quite the same scale as the demand-led budgets for social security, the Scottish Government has established budget management processes and procedures that manage the impacts of demand-led budgets. The Scottish Government is putting in place additional processes to manage and mitigate the risks around forecast variation for social security spending.

110. Forecasts from the Office for Budget Responsibility will be used to calculate the Block Grant Adjustments. These Block Grant Adjustments are recalculated in-year based on actual UK demand. The Scottish Government will produce forecasts of benefits to support policy development and evaluation, and financial management. The Scottish Fiscal Commission will be responsible for the production of independent forecasts to inform the Scottish Government's Draft Budget and the Budget Bill.

111. As part of the Fiscal Framework, the UK and Scottish Government agreed resource borrowing powers to enable the Scottish Government to manage the additional risks and volatility associated with the devolution of social security. From 1 April 2017, the Scottish Government has the power to resource borrow up to £600 million each year within a statutory overall limit of £1.75 billion. The powers are constrained, however, and there are specific purposes and limits for any resource borrowing. These purposes are for in-year cash management with an annual limit of £500 million, for forecast errors with an annual limit of £300 million, and for any observed or forecast shortfall where there is or is forecast to be a Scotland-specific economic shock with an annual limit of £600 million.

112. Detailed arrangements for reporting and repaying resource borrowing are currently being finalised with the UK Government. These powers and arrangements are distinct from the capital borrowing powers, which have separate arrangements as set out in the Fiscal Framework. The borrowing powers for forecast error cover both forecast error arising for devolved and assigned taxes as well as social security. Therefore, if in-year demand for benefits is higher than forecast, this borrowing power could be used to fund any gap and the necessary budget cover obtained.

113. The creation of a Scotland Reserve, from 2017-18 onwards, enables the Scottish Government to smooth all types of spending, including any on devolved benefits. The Scotland Reserve is capped, in aggregate, at £700 million for revenue and capital. Annual drawdowns from the reserve will be limited to £250 million for resource.

114. In addition to the above, the Scottish Government is currently considering its response to the Final Report of the Budget Process Review Group ^[11] , which is expected to lead to new arrangements for the Scottish Budget. This will assist in managing the risk created by the incorporation of significant demand-led expenditure within the Scottish Budget.

Scottish Social Security Charter

The Scottish Government is requested to provide further detail on the potential costs associated with the Charter in its response to this report.

115. The Scottish Government does not believe the introduction of the charter or independent scrutiny body will lead to any material increase in costs. The cost estimates in the Financial Memorandum accounted for the potential costs of the charter and independent scrutiny body. Its preparation – including consultation and engagement with stakeholders, the DACBEAG and members of the Experience Panels – will be overseen by Scottish Government officials and will not require any additional resources beyond existing staffing budgets. Similarly, the proposed mechanisms for reviewing the charter will be delivered from existing Scottish Government resources, together with a potential role for an independent scrutiny body.

116. In terms of enforcement, as has been explained in detail throughout this report (see paragraphs 43 to 48 and 64 to 73), human rights are already justiciable: the Scottish has formal legal obligations and is subject to nineteen separate rights treaties and protocols that it is strongly committed to upholding. As has also been explained, the priority is therefore to build a system that treats people fairly in the first place and that is structurally and culturally designed, where things do go wrong, to provide satisfactory resolution of issues immediately on the ground.

117. The Scottish Government believes that combining this with robust arrangements for independent scrutiny will secure a system that is responsive, supportive and accessible. It believes that the strength of this approach is such that the need to seek redress through judicial enforcement should be minimal.

ICT Implementation Costs and Administration Cost Estimates

The Scottish Government is requested to provide a further breakdown of the £190 million figure and further detail on the system specification for Wave 1 benefits in its response to this report.

118. A further breakdown of the initial high-level estimate for IT implementation of £190 million included within the Financial Memorandum was included in the letter from Andy McClintock (Social Security Chief Digital Officer) to the Public Audit and Post Legislative Scrutiny Committee on 7 December ^[12] . The table included in that letter is reproduced below and shows the component breakdown of the high-level estimate detailed in the financial memorandum to the Bill (the estimate includes optimism bias and VAT).

119. As noted at paragraph 54 of the Financial Memorandum, it should be emphasised that this is an initial estimate which could change materially, and firm estimates of cost will only become clear as the key decisions are taken and detailed plans developed.

Component	Estimate Cost (£million)
Case Management Solution	33.3
Telephony Solution	0.4
Document Handling Solution	3.6
Corporate Accounting Solution	0.9
Payment Handling and Reconciliation Solution	42.1
Knowledge Management Solution	0.4
Identity Management Solution	7.2
Reporting and Statistical Modelling Solution	0.3
Data Feeds and Exchanges	4.5
Online Presence	0.3
Digital Access Solution	10.1
Scottish Government IT Onboarding	15.0
Scottish Government IT Infrastructure	17.1
Development Environment	0.8
Test Environment	18.0
Protective Security	36.0
Data Hosting	0.4
Total	190.4

120. During October 2017, a two-year contract to build the first phase of Scotland's new social security IT system was awarded to IBM United Kingdom Limited. The £8.3 million contract will support the implementation of two new Scottish Government benefits: Best Start Grant (Early Years Assistance in the Bill) and Funeral Expense Assistance. These will be delivered by Scotland's new social security agency by summer 2019. The contract includes provision for up to two further benefits to be included within the scope once the timeline for delivery is clear.

121. The scope of this contract is to assist in the delivery of the Low Income Benefits. The supplier will collaborate to design and deliver the required solutions through to production and provide on-going application maintenance and support. This requirement covers the provision of Discovery, Alpha and Beta implementations for Low Income benefits being devolved to Scotland. For the benefits to be delivered, the following will be required:

• Best Start Grant – Alpha, Beta;
• Funeral Expense Assistance – Discovery, Alpha, Beta – building on capabilities delivered for Best Start Grant;
• One assistance with a similar service design pattern – Discovery, Alpha, Beta – again building on capabilities already delivered;
• Option for one further assistance with a similar service design pattern – Discovery, Alpha, Beta – again building on capabilities already delivered.

122. Services required under this Contract will be managed using Statements of Work ( SOW) agreed between the Parties. The purpose of each SOW is to agree the time, cost and quality ( e.g. the deliverable(s) to be achieved by the end of the SOW). A SOW may cover a specific project phase for specific benefits ( e.g. Alpha for Best Start Grant), a distinct capability of an overall service ( e.g. Case Management) or a mixture of project phases or capabilities across specific benefits ( e.g. Alpha for Best Start Grant and Discovery for Funeral Expense Assistance).

Wider Impact

The Scottish Government is requested to outline its view of the anticipated wider impact of spend on social security benefits in its response to this report.

123. Once fully operational, the Scottish Government estimates the social security agency will employ at least 1,900 people across central and local functions. At least 1,500 jobs will be split between the Dundee headquarters and the second central administrative site in Glasgow. The agency's local presence will also ensure that at least 400 jobs are spread across Scotland. The agency expects to contribute around £125 million in GDP and support around 800 other jobs outside the agency in the wider economy.

124. In addition to the positive impact the creation of the agency will have on the economy, the Scottish Government will continually assess the impact of social security benefits on public finances. The Scottish Fiscal Commission has key responsibility for producing forecasts for devolved benefits and the Scottish Government will work with them, as appropriate, to help develop forecasts that are of a high quality. All significant resource commitments, and investment decisions, are subject to the development of robust business cases that fully consider value for money (in line with the Scottish Public Finance Manual). Business cases assess cost, risk, critical success factors and outcomes (which the Scottish Government also refers to as 'measurable improvements'). Measurable improvements identified for the programme so far can be found in published business cases and those which are currently in development.

125. Scottish Ministers believe that the investment they are making in the new social security system will improve the outcomes for people living and working in Scotland now and in the future. The outcomes expected to be realised have been organised across several themes:

• Dignity and respect;
• Equality and poverty;
• Efficiency and alignment;
• Implementability and risk;
• Economy and environment (wider impact on communities).

126. The Scottish Government also has dedicated analytical support working across the Programme (operational and social researchers, statisticians and economists) who will support the measurement and evaluation of impact. These analysts are able to draw on established cross-government guidance and support though their professional groups.

Parliamentary scrutiny of the costs associated with the Bill

The Scottish Government is requested to outline when and how Parliament will have the opportunity to scrutinise the costs associated with the Bill in its response to this report.

127. Any relevant budget associated with implementing and then administering the newly devolved social security powers, together with any relevant budget for benefits, will be scrutinised by Parliament annually through the normal Scottish Government budget process.

128. In 2017-18, a budget was established in the Finance and Constitution portfolio that social security (and other areas of further devolution) could draw upon for administration and implementation costs. Budget transfers to the social security programme from the Finance and Constitution portfolio are transparent and open to Parliamentary scrutiny through the in-year revisions to the Scottish Budget, which are scrutinised by the Finance Committee and approved by Parliament. Budget made available in-year to a Scottish social security agency will be subject to Parliamentary scrutiny following the same process.

129. Budgets for benefits will form part of the standard Parliamentary scrutiny approach to budgeting. When a benefit is devolved, a Block Grant Adjustment will be received and this will need to be reflected in the Scottish Budget. The timing of this addition to the budget will depend on when the benefit is devolved.

130. For example, if a benefit were devolved mid-year, the Scottish Government would expect a Block Grant Adjustment and associated budget to be reflected through the in-year budget revision process, which will, in turn, be scrutinised by the Finance Committee and approved by Parliament. Should a benefit be devolved on 1 April in any year, then the Scottish Government would expect that the Block Grant Adjustment and associated budget would be included in the draft budget for Parliament's approval.

131. The timing of inclusion of a budget for benefits will also be dependent on appropriate primary or secondary legislation being passed by Parliament. Once appropriate primary or secondary legislation is in place, budget would then be reflected either in the draft budget process or through the in-year revisions as appropriate, with either approach subject to Parliamentary scrutiny.

132. The Scottish Government expects that the Scottish Fiscal Commission will prepare forecasts of benefit expenditure when primary or secondary legislation (as appropriate) is approved by Parliament to inform the budget being scrutinised for benefit expenditure.

133. Provisional outturn against budget forecasts will be laid before Parliament annually, as is the current process. This provides Parliament an opportunity to scrutinise expenditure against the budgets they previously approved. The Annual Accounts of the Scottish Government and, in time, the social security agency will be laid before Parliament annually to allow further scrutiny of amounts spent on social security. This would cover implementation expenditure, administration expenditure and benefit expenditure.

Social Security Committee consideration of ICT Implementation

The Scottish Government is requested to report to the Committee on ICT implementation on a 6 monthly basis.

134. The Scottish Government welcomes the Social Security Committee's interest in its programme of ICT implementation for the new social security agency and will ensure that the Committee receives updates on a bi-annual basis. It would also welcome a suggested reporting schedule from the Committee, in due course.