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Social Security for All of Us: An independent Scotland as a modern welfare state

Overview —

This paper examines several possible policy ideas for social security in an independent Scotland.

These ideas include increasing social security provision to match typical Nordic countries, introducing a negative income tax, implementing a job guarantee scheme and introducing a full Universal Basic Income.

Credits—

Dr Craig Dalzell

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As Scotland prepares to launch Social Security Scotland to manage new limited powers over social security being devolved to Scotland, Common Weal looks further ahead at the prospects for radical policies that could be implemented if Scotland becomes independent or more powers are devolved to Scotland.

KEY POINTS

― The social security powers being devolved to Scotland are powerful enough to make a difference but are also extremely limited in their scope. As Scotland continues to move towards independence, thought must be applied to what we could do with the full range of social security powers.

― The current UK Welfare State is typified by many, highly targeted “benefits” schemes which are often hard to apply for, hard to maintain as circumstances change and pay meagre amounts. Sanctions for even minor breaches of arbitrary rules can be emotionally and financially devastating.

― Recent attempts at consolidating this scheme – such as Universal Credit – have also employed “telescoping” so that the total amount of benefit paid to an individual is reduced as their multiple benefits are consolidated under this single payment.

― Universal Credit also employs a severe “taper rate” equivalent to a marginal income tax rate of 63% in some cases. This is an effective barrier against taking on higher paid work or even working longer hours.

― Once Scotland becomes independent it will need to build its entire social security system almost from scratch. This will be the case even if no changes in policy are intended, thus the effort to replicate the UK’s existing benefits system will be almost as much as building a true social security system worthy of the name.

― If Scotland looks at its “Nordic Horizons” and seeks to replicate the kind of health and social security systems in place in our Nordic neighbours then it would result in much higher spending. Raising health and social security spending to a level proportionate to Finland would mean Scotland spending an additional £8.2 billion per year. It is estimated that this could cut Scottish poverty rates in half.

― Scotland is a relatively low tax economy. Raising tax revenues to the equivalent of the average of our Nordic neighbours would be more than capable of funding increases in social security.

― A Job Guarantee Scheme could be implemented. This would replace Job Seekers’ Allowance with an offer of an appropriate and meaningful government funded job. This would effectively eliminate frictional unemployment and could be used to target economic development in certain sectors (such as the Green New Deal) or geographic areas (such as communities who have lost a keystone employer). However, this should not be seen as a replacement to social security as not everyone who not working is able to work or even would want to work (this may include people with disabilities, students, and folk who care for someone but do not wish to be considered a “professional carer”). The JGS may also have difficulty addressing structural unemployment where people may require extensive retraining before entering an offered “job”.

― A Negative Income Tax may be an effective way of improving Scotland’s social security and may be possible to implement within devolution. This would create an automatic payment to anyone whose income falls below a certain threshold and would result in an effective minimum income guarantee. The paper models the effect of setting the minimum income at the equivalent of Jobseeker’s Allowance and the maximum income threshold at the Real Living Wage and results in a tax credit of 23% of the “gap” between actual earnings and the upper threshold.

― A Universal Basic Income is also modelled. Under a UBI, everyone in Scotland would receive a payment regardless of circumstances or other income. Income Tax can be adjusted to claim back that payment from folk on higher incomes. A “Revenue Neutral” UBI is modelled for Scotland whereby a payment of £73 per week is given to every adult (the equivalent of JSA), £67 per week to every child (equivalent to Child Benefit) and £156 to every pensioner (equivalent to State Pension).

―  The gross cost of this UBI is calculated at £24.5 billion per year. This is offset by the replacement of £16.6 billion worth of State Pension and benefits with the remaining £7.8 billion raised through adjustments to income tax.

― Of the policies suggested in this paper, Common Weal supports the introduction of a UBI as the foundation of an independent Scotland’s social security though a Job Guarantee Scheme should also be explored as part of broader economic development strategy.

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