Supplementary Written Evidence submitted by Steve Webb MP, Minister of State for Pensions

 

 

 

WORK AND PENSIONS SCOTLAND ANALYSIS PAPER

 

 

Thank you for inviting David Mundell and I to the committee on 6 May 2014 to give evidence on the Work and pensions Scotland analysis paper which was launched on 24 April 2014.

 

 

During the hearing I promised to write to provide additional information on:

 

 

 

 

I have attached an appendix to this letter which responds to those questions in some detail.

 

The committee also asked about the payment of state pension. In particular, a number of questions about who would be responsible for paying state pensions in the event of independence and what this would mean for the security of these pensions for individuals in Scotland. I hope you will find it helpful if I clarify the position in this area.

 

In the event of a yes vote there would be negotiations between the UK Government and the Scottish Government, in line with the Edinburgh Agreement. One area these negotiations would need to focus on is who would take on the liabilities associated with paying the state pension. While there are to be no pre-negotiations, I would think the Scottish people would expect their Government to take on full responsibility for paying pensions to people in Scotland including where liabilities had arisen before independence. Similarly people in the rest of the UK would not be expecting to guarantee or underwrite the pensions of those living in what would then have become a separate country. The security and sustainability of pensions being paid to people in Scotland would, therefore, depend on the ability of Scottish tax payers to fund them.

 

The current Scottish Government have already made a number of unfunded spending promises which would significantly increase the cost of paying both pensions and working age benefits for an independent Scottish state. Taken together with Scotland's ageing population, in just twenty years time an independent Scottish state would face additional costs rising to around £1.55 billion per year. This is equivalent to an additional £450 per year for every working age person.

 

By remaining part of the UK, people in Scotland will have greater certainty and security over their pensions. The broad shoulders of the UK help to spread the risk and ensure spending on pensions is more affordable.

 

You will also have seen the Scottish Government's four page report which claims that pensioners in Scotland are being "short changed by £11,000" per year. As we did not have the benefit of discussing this at the hearing I thought it would be helpful to briefly discuss some of the issu.es here.

 

 

 

 

 

 

 

The Scottish Government's report focuses solely on the issue of life expectancy without explaining the demographic challenges associated with an ageing population which would be faced by an independent Scottish state. In addition, while life expectancy will increase across all parts of the UK the evidence indicates the increases will be greater in Scotland for both men and women. This will lead to a small narrowing of the gap in life expectancy between Scotland and the rest of the UK from 2010 to 2030.

 

If the Scottish Government is now saying it would increase pensions in an independent Scottish state so that the total paid over the average retirement would be the same as for someone with the UK average life expectancy, this would be an even bigger unfunded cost facing an independent Scottish state. On top of that, it would not address the underlying reasons behind why average Scottish life expectancy is slightly lower than in the rest of the UK.

 

 

I am copying this letter to David Mundell.

 

 

 

 

 

 

STEVE WEBB MP

MINISTER OF STATE FOR PENSIONS

 

 

 

May 2014


APPENDIX TO THE LETTER

 

1. Public service pensions

 

 

During the committee hearing I was asked about public service pension liabilities. As I mentioned in my response to Questions 31 and 58, estimates suggest that the total liability figure for unfunded public service pensions in Scotland is around £100 billion (out of an estimated £1,008 billion for the UK overall). Ascertaining a precise figure is very difficult and would need to be negotiated between the UK and Scottish Governments in the event of an independent Scottish state.

 

 

In quarter 4·of 2013, public service employment in Scotland represented around 10.3°/o of UK public service employment.1

 

 

Although the pensioner population in Scotland is projected to increase more slowly than the UK's overall, the number of working-age people in Scotland is also projected to increase more slowly than the rest of the UK - and by a larger margin. Assuming that the age profile of public service workers is broadly similar to that of the general demographic of Scotland, this means that the gap in funding public service pensions could increase going forward. Indeed, the gap could grow faster in Scotland than in the rest of the UK. The government of an independent Scottish state would, therefore, need to address how it would fund this increasing gap. Possible methods might include, for example:

 

 

 

The committee also asked whether the share of liabilities of public service pension schemes for Scotland is broadly similar to the share of public spending. As already outlined, the estimated total liability figure for unfunded public service pensions in Scotland is around £100 billion - I.e. around ten per cent of overall UK public service liabilities. This is based on the population ratio between Scotland and the UK. A similar amount (9.64 per cent) of the UK's identifiable public spending relates to Scotland, which includes both devolved and reserved spending, but excludes spending that is for the benefit of the UK as a whole (such as defence and foreign affairs).

 

The UK wide figures that I committed to provide (Q 63) are in the public domain and can be found at:

 

http://cdn.budgetresponsibility.org.uk/83723-March 2014 EFO Fiscal_Supplementary_Tables.xls

 

 

 

 

 

 

1 This is based on data from the ONS website http://www.ons.gov.uk/ons/publications/re-reference­tables.html?edition=tcm%3A77-335611

 

 

 

 


 

 

 

2. Disability benefits in Scotland

 

I was also asked about the reasons why there are higher levels of disability benefits in Scotland and if any analysis has been done of it (Q 106 and 114).

 

As. discussed in the Work and pensions Scotland analysis paper (para 2.7) this is partly because Scotland has proportionately more people in older age groups (who are more likely to be disabled) and higher levels of disability reported at each age, but even allowing for this there is a higher rate of claiming incapacity and disability benefits in Scotland.

 

The 2012/13 figures show that 9.1% of the Scottish population were in receipt of disability benefits, compared to 8.0% for UK.

 

 

 

3. Time periods for implementing change within the social security system

 

In Its White Paper Scotland's Future, the Scottish Government stated that In the event of a "Yes" vote on 18 September 2014, it would negotiate for Scotland to become Independent on 24 March 2016 (i.e. within 18 months).

 

The Committee sought my view on the viability of an independent Scottish state being able to implement new policies within an 18 month timescale.

 

 

It is clear from the evidence that introducing just one new reform can take many years. It would, therefore, be extremely unlikely that the Scottish Government would be able to introduce a wholly new system to pay benefits and pensions to several million Scottish citizens in such a short timescale. I agreed to provide examples of the UK Government's experience of timescales for Introducing new benefits.

 

For example, the latest Child Maintenance reforms have taken 8 years. The policy blueprint for a new system of child maintenance (including a new IT platform to support the changes and allow for the introduction of charging and closure of the existing schemes) dates back to a report from Sir David Henshaw in 2006, which led to a White Paper the same year. The Child Support and Other Payments Act 2008 paved the way for the new 2012 Child Maintenance Scheme, whilst the introduction of charging was consulted on in a Green Paper on the future of child maintenance in 2011. The Government's response to the consultation was ratified in the Welfare Reform Act 2012, preceding the introduction of the new Child Maintenance Service in December 2012, as well as charging and case closure on 1993/2003 schemes due to begin this summer (2014).We introduced the new 2012 scheme using a pathfinder approach which allowed us to micro-manage cases to ensure the IT system and processes were stable before opening up the scheme to more clients- deliberately introducing this policy gradually gave us the opportunity to learn lessons and resolve issues as they arose

 

A more recent example is Employment and Support Allowance (ESA). The policy development for this started in 2005, with a Green Paper and consultation exercise taking place during 2006. The Welfare Reform Act 2007 provided for the introduction of ESA which was payable for new claims from October 2008. At this time, over 2.5 million people were claiming incapacity benefits, of which almost 291,000 were in Scotland. Existing incapacity benefits claims began to be migrated to ESA in April 2011.

 

4. DWP staff numbers in Scotland and where they are based

 

I was asked about the number of DWP staff in Scotland who are providing a UK-wide service and where they are based. Staffing data held by DWP shows the numbers of staff working in each of the Scottish sites, but does not differentiate between those staff who process benefits or service claimants based on their locality either inside or outwith Scotland.

 

There are 10,318 DWP staff based in Scotland. This is around 11% of the total, compared to around 9°/o of claimants. They work in 111 sites.

 

5. UK Government staff numbers in Scotland and where they are based

 

 

David Mundell will respond directly to question 134 on other UK Government staff numbers in Scotland and where they are based.