Why is Scotland spending an additional £1 billion on social security?

Reading Time: 5 minutes

In 2023-24 the amount paid out in devolved social security benefits is forecast to increase by around £1 billion – from £4.2 billion in 2022-23 to £5.2 billion in 2023-24. 

This blog takes a quick look at why that increase is happening and how it compares to the money provided by the UK Government through the social security Block Grant Adjustment.

A big chunk of the increase is the cost of uprating – high inflation means benefits are being uprated by 10.1% (the September 2022 rate of CPI).  This adds £433 million to spending in 2023-24.

Increased spend is mostly on just two benefits

Most of the £1 billion increase in spending is focused on:

  • Adult Disability Payment and Personal Independence Payment, increasing by £642 million and
  • Scottish Child Payment, increasing by £216 million.

Together these two make up 81% of the increase in Social Security spending (£858 million out of the £1,057 million increase).

So why is more being spent on these two benefits?

Scottish Child Payment

The £216 million increase to SCP spending reflects increasing the weekly payment from £20 to £25 and extending the age limit from 6 to 16. Regulations to make these changes were approved by the Parliament in November 2022.

In 2023-24 it’s expected that around 338,000 children will get Scottish Child Payment – that’s 37% of all children under 16. It provides £25 per week for each child in families who get the main ‘low income’ benefits and modelling suggests it could lift around 50,000 children out of poverty in 2023-24.

It’s the flagship policy for meeting statutory targets to reduce relative child poverty to 18% by 2023-24 and 10% by 2030.  On average across 2017-20 relative child poverty was 24%.  The statistics for 2021-22 are due in March. We won’t know whether the 2023-24 target has been met until March 2025.

Adult Disability Payment

Adult Disability Payment (ADP) is the Scottish replacement for the main ‘working age’ disability benefit – Personal Independence Payment (PIP).  It started in August 2022 and people are being transferred across from the Department of Work and Pensions (DWP) to Social Security Scotland over the next two years.

The increase to ADP and PIP spending reflects:

  • uprating by 10.1%
  • increasing demand for disability payments across the UK and
  • higher spending on ADP compared to the benefits it’s replacing (Personal Independence Payment and working age Disability Living Allowance). 

The Scottish Fiscal Commission assumes that more generous provisions in the way decisions are made for ADP than for PIP will lead to higher spending. Whether or not this proves to be the case will not be clear until we start to see the outcomes of ADP decisions as the new benefit beds in. Spending assumptions are therefore highly uncertain. Because it is such a large benefit, this introduces significant uncertainty to the whole devolved social security budget.

It’s the second of Social Security Scotland’s disability payments to be launched. Child Disability Payment (CDP) has now replaced Child Disability Living Allowance (DLA) in Scotland. In 2023-24, the Scottish Fiscal Commission forecasts that spending on CDP and ADP will be £171 million above the funding received from the UK Government for the devolution of PIP and ADP (SFC fig S5.16).

There has been an increase in successful claims for PIP across the UK.  While the reasons for this haven’t been confirmed, explanations offered by the Scottish Fiscal Commission and Institute for Fiscal Studies focus on increasing NHS waiting times, economic inactivity on grounds of ill-health and people being more likely to take up support in response to the increasing cost of living. The impact of this builds up over time – adding £5 million to spending in 2023-24, rising to £186 million in 2026-27 (SFC fig 5.4).  Because this is happening across the UK this trend also increases the amount of funding provided by the UK Government. 

Finally, both the UK and Scottish Governments are uprating benefits by 10.1%. This has a large impact on PIP/ADP simply because it is a large benefit to start with. A year ago the SFC had assumed that inflation would be 3.9%.  Uprating by 10.1% instead adds £145 million to forecast spend on ADP/PIP (SFC fig S5.38).

Funding from the UK Government is also increasing

The Scottish Government gets an addition to the Scottish block grant for each DWP benefit that has been devolved.  This addition, very broadly, reflects what would have been spent on that benefit under DWP rules.  The block grant adjustment (BGA) doesn’t have to be spent on social security (it’s not ‘ring-fenced’) but comparing BGA and spend does provide a useful way of looking at pressures on the budget.

In 2023-24 the total social security BGA is forecast to increase by £657 million, from £3,703 billion to £4,360 million.  At the same time, spending (on ‘new payments’ and benefits with a BGA) increases by £1,057.  So the difference between this spending and BGA funding is forecast to increase from £374 million in 2022-23 to £776 million in 2023-24. 

Spending ‘above BGA’ is growing, and growing faster than expected

This spend ‘above BGA’ has to be found from other budget lines or tax increases. Of the £776 million:

  • £194 million is higher spending on those benefits that get a BGA.
  • £582 million is spending on benefits unique to Scotland and not funded by the UK Government through a BGA – almost all of this (£442 million) is the Scottish Child Payment.

So, although total devolved social security spending is over £5 billion, the real pressure created by social security policy is the £776 million of spending above what is received through the BGA. 

‘Spend above BGA’ is higher than forecast in previous Scottish budgets. 

The final chart shows how forecasts have changed. In January 2021, the SFC forecast that, in 2023-24, ‘spend above BGA’ would be £259 million.  Changes since then include higher inflation, higher Scottish Child Payment, introducing ADP and better alignment between SFC and Office of Budget Responsibility forecasts.  As a result, ‘spend above BGA’ in 2023-24 is now forecast to be £776 million.  By 2027-28 it is forecast to be £1.4 billion.

At a time of high inflation, and a very tight over-all budget, this additional spending shows clearly where the Scottish Government is prioritising spending.  It reflects two key priorities – improving disability benefits and tackling child poverty. However it also suggests there may be limited room to make changes that would increase social security spending even further.

Camilla Kidner, SPICe