SNP ministers told to plan now for surge in social security costs

SFC chair Dame Susan Rice said the matter had to be “tackled sooner, not later”.

She was speaking the day after SNP Finance Secretary Kate Forbes presented her draft budget for 2022/23 to MSPs and the SFC published accompanying forecasts.

The independent body said ministers had to keep a close eye on social security spending, which is predicted to rise by a third from £4.1bn next year to £5.5bn by 2026/27.

In particular, ministers were told to monitor the devolved Adult Disability Payment (ADP) which next summer replaces the UK Personal Independence Payment (PIP).

This is expected to cost just over £3bn by 2026/27, almost 6% of the entire Holyrood budget, and £527m more than the less generous PIP system.

ADP is also set to add another £40m to the bill for carer’s allowance and its supplement.

People will quality for ADP on the basis of a disability or health condition, regardless of their income or employment status.

With older people more likely to qualify, and Scotland’s elderly population rising, the number of people on ADP is expected to increase over the next five years.

The SFC said the Scottish Government choices on social security would have “long-term spending implications, as once people are deemed eligible, they can continue to receive a payment for many years”.

It said the “sheer magnitude” of ADP meant the forecasts for it were among “the most crucial the Government has to keep its eye on for the future”.

Other changes to devolved social security mean that Holyrood will be spending £764m more than it gets from Westminster for welfare payments by the end of the parliament.

At the same time, Scotland’s lower economic growth and earnings relative to the rest of the UK mean devolved tax income is likely to be negative in four of the next five years.

This meaning devolved tax receipts will be more than outweighed by adjustments to the block grant going to Holyrood from Westminster.

The main driver is relatively poorer income tax receipts, which are forecast to be £417m lower than the block grant adjustment in 2026/27.

Income from land and buildings transaction tax and landfill tax are generally positive, but the combination of all three still leaves a £355m shortfall in 2026/27.

In addition, forecasting errors in the current year mean an adverse £469m budget “reconciliation” is now expected in 2026/27, with the Scottish Government only able to borrow £300m to cope with it, leaving ministers with a further £169m to find.

“Obviously that is a pressure,” said SFC chief executive John Ireland.

Dame Susan said it was “hard to say how worrying” the situation was, but added the SFC’s forecasts were intended to “signal there need to be plans now to anticipate how those social security programmes will be funded”.

Besides the advent of ADP, ministers are also doubling the Scottish Child Payment for low-income families to £20 a week from next April, costing £363m by 2026/27.

While the Scottish Government receives some cash from Westminster towards providing benefits, the SFC 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 £750m more than the corresponding funding received as part of the block grant, reducing the funding available for other priorities.

“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.

The Scottish Government has been asked for comment.