Ministers told to plan now for rising cost of social security in Scotland

The Scottish Fiscal Commission said ‘serious thought’ needed to be given to how benefits would be paid for.

Ministers are being urged to plan ahead for rising social security costs (Gareth Fuller/PA)

Ministers need to give “serious thought” about how they will meet the rising costs of Scotland’s new social security programme – with the costs of providing benefits set to rise over the next five years at the same time as the country faces an income tax shortfall.

Dame Susan Rice, chair of the independent Scottish Fiscal Commission, said the matter needs to be “tackled sooner, not later”.

She spoke out in the wake of forecasts from the commission – published to coincide with the Scottish Budget – that showed spending on social security is forecast to rise by a third (34%) over the next few years, going from £4.1 billion in 2022-23 to £5.5 billion in 2026-27.

Just one payment, the new Adult Disability Payment, which will replace the UK Government’s Personal Independence Payment north of the border in 2022, is expected to cost ministers more than £3 billion a year by 2026-27.

But at the same time, the commission has warned Scotland is facing a growing income tax “shortfall”, which it predicted could rise from £190 million next year to £417 million in 2026-27.

That funding gap arises because income tax revenues are likely to be less than the lump sum taken off the block grant Scotland receives from Westminster following the devolution of some tax powers to Holyrood.

Further to this, the commission warned income tax reconciliations could put more pressure on the Scottish budget

Chief executive John Ireland said: “In 2024-25 there is a very big negative reconciliation for income tax that we are anticipating of £469 million.

“In that year the Government will only be able to borrow £300 million to cover forecast error, so they are going to have to find an anticipated £169 million from elsewhere in the Scottish Budget, and obviously that is a pressure.”

Dame Susan said it was “hard for us to say how worrying” the situation is for the Government.

But she said by speaking out the commission was giving a “signal there needs to be plans now” to set out how the rising social security bill will be covered.

Scottish ministers are making “significant reforms” to social security, with this including the new Adult Disability Payment, which will launch next year, and the Scottish Child Payment – which will be doubled to £20 a week to help low-income families from April, ahead of a further expansion of the scheme, which currently helps children under the age of six, so that it is paid to all youngsters under 16 in poorer households.

While the Scottish Government receives some cash from Westminster towards providing benefits, the commission warned this money would not sufficient to cover all of the costs.

Dame Susan noted: “By 2024-25 we’re expecting spending on the Scottish Government’s largest social security payments, along with the completely new payments, to be around £750 million more than the corresponding funding received as part of the block grant, reducing the funding available for other priorities.”

She added: “The reason we have pointed this out is simply to trigger for those involved in the discussion, which is the Parliament and the Government, to give some really serious thought about how to manage this very progressive social programme that the Government is putting out.

“They have some time, but that has to be tackled sooner, not later.”

She also noted the requirement for the Scottish Government to produce a balanced budget each year, leaving it unable to run up a deficit.

“There has to be a lot of discipline,” Dame Susan said.