Longer budget cycles would help manage welfare spend

There is every reason to have sympathy with the Scottish Government over an alarming welfare spending shortfall, but that sympathy doesn't solve the problem. Scotland has reverted to short term budgeting processes and these should be extended again to give better forward planning.

Audit Scotland has identified a £770 million gap between welfare spending and the public finances allocated to it. This gap alone is worth more than one per cent of all public spending in Scotland. When public spending is tight, one per cent of all spending is a lot.

Yet this isn't a straightforward government culpability story (though it is not clear there was anything like enough monitoring and planning). Welfare is always a difficult budget to manage because it is demand-led rather than supply-led. That is to say governments set the rates but until you know how many people are eligible to claim in any given year, you don't know what it will actually cost you.

The second issue is that welfare is only partially devolved and that means the Scottish Government has the increased complication of not knowing how welfare policies set in London are going to play out. Will they affect entitlement in Scotland? Effectively, what is Scotland backfilling?

So there are two very significant factors which make demand hard to predict. And it doesn't get any easier. The UK routinely deals with this kind of demand-led uncertainty through end of year flexibility. The UK Government can carry overspend over as debt into a successive year.

The Scottish Government meanwhile works with fixed budgets it must spend in one year. Unlike the UK, Scotland has to get this more or less right, in-year, every year. If it underspends it gets criticised and if there is an overspend there are big problems.

And of course there is little the Scottish Government can do about it. For example it is remarkable that we are still arguing over benefit cuts for the poorest and most vulnerable and yet there is a nearly £50 billion annual subsidy to the wealthiest. About 50 per cent of all pension wealth is owned by the top 20 per cent in society and yet we spend £50 billion a year subsidising their pensions.

At a UK level it is time to tackle wealth inequality by targeting the hand-out culture of the wealthy. It would cover the welfare deficit with ease. But in the UK the handout culture among the very richest is never discussed – and the Scottish Government does not have those powers.

So there is no question that this is hard for the Scottish Government, and there is reason for sympathy. However, only limited sympathy. There have been repeated examples of data that implies that the Scottish Government is better at allocating money than it is at monitoring the impact of all the allocations.

This is not the only budget shortfall that has seemed to catch the government by surprise. There does not seem to be a particularly effective financial management regime in Holyrood and there is a sense that the shiny baubles of spending announcements hold too much attraction in comparison with the grunt work of making sure the spending is under control.

But there may be a more significant change it would be work making. When the Scottish Parliament was created it started out with processes of spending reviews. A spending review was actually a pretty effective process. Once every three budgetary years (though the last and first year overlapped so it was every two calendar years) there was an invitation to bodies in receipt of public funding to bid for their level of funding over the successive three years.

Organisations made claims for what funding increase they wanted, explained the cost pressures driving it, or they would set out a statement of the public-good gains that would result. It was a fairly effective process for creating a participative, open public debate about funding priorities.

However, it did create a bi-annual focus in which funded bodies would run concerted funding campaigns. The politicians seemed to see it less as an open and deliberative process of debate and more as an unfortunate campaign opportunity for civic Scotland. Spending Reviews were scrapped and the budgeting process narrowed, with a greater focus on annual funding.

Common Weal supports the principle of creating term-long budgeting estimates. We would reduce the term of a Scottish Parliament to four years and would have all political parties given access to civil service support and the 'bid documents' submitted as part of a spending review. This would be done in the run-up to an election and so outline four-year budget estimates put forwarrd by each party would become part of an election campaign.

These are outlines; things change and budgets adapt. Governments remain free to rip up the plans if there are major events like the pandemic. But they give better planning horizons and give you a clearer sense of whether spending is on track.

It would not have made the current welfare difficulties go away, but it would have helped manage them. You can find more details in Sorted.