Eddie Barnes: Is there a third way on welfare?

Chancellor George Osborne delivers his spending review. Picture: PA

GEORGE Osborne looked a little sickly – and it was nothing to do with the burger he had eaten the night before. Standing at the despatch box on Thursday afternoon as he delivered his much-awaited spending round statement, the Chancellor appeared – in the words of Labour frontbencher Jim Murphy – like “he has the wrong colour of foundation on”. Osborne does not appear to enjoy these big set-piece occasions. Perhaps it is because he always has to give such bad news. If that is the case, he is going to look even worse if he is still Chancellor after the 2015 General Election.

Last week’s statement, setting out the cutbacks for departments in 2015-16, spelt bad news for many. And yet, with that election in mind, Osborne succeeded in keeping the full stomach-churning picture from view. To ensure Britain’s bust model of public services can once again wash its face, the Chancellor’s plans now involve slicing total spending by just over 18% by April 2018. Last week’s eye-watering measures lopped off less than 3%. He has already managed to hack off around 9%. But a further 7.5% is still to be found.

It was only on the Breakfast TV sofa the following morning that Osborne was finally pressed on this bigger picture. “This will be an issue, I suspect, eventually when people come to choose their next government, because my political opponents would probably want to put taxes up. My instinct is let’s try and control welfare bills, let’s try and control the cost of what we’re doing.” He backtracked a little later, but the signal could not have been greater. Britain’s benefits bill makes up the largest single chunk of government spending. And, in the hope he can put Labour on the side of high taxes and ballooning benefits, the Chancellor has his eye on it.

The rest of the UK, if it elects a Conservative administration in 2015, may just have to lump yet more reductions to welfare. But in Scotland, there are options. With the referendum little more than a year away, the SNP were quick last week to argue that independence may offer a way out. Meanwhile, on the other side of the constitutional debate, academics and politicians are examining whether aspects of the welfare state could be devolved to a Scotland that opts to remain within the UK next autumn. Both propositions have as a bedrock the belief that left-of-centre Scotland would like to put its money where its mouth is and stump up to ensure that the cuts to Britain’s 60-year-old Welfare State are not brought in here. So might there be a way out of Westminster’s cutbacks in Scotland? And is there really the political will behind it?

For the pro-independence campaign, the case is relatively simple. Responding last week to the Chancellor’s statement, SNP Finance Secretary John Swinney declared there was “a choice next year between a UK future of continued Westminster austerity and ideological attacks on the welfare system or the better and brighter prospect of an independent Scotland.” A report earlier this month by a Scottish Government commissioned panel noted that there would have to be a period of transition lasting up to five years before an independent social security system could be fully operational in Scotland. Debate will rage over exactly how affordable it would be, given the higher per head spending on welfare north of the Border. But no-one can dispute that, in the longer-term, the system would be under the control of ministers in Edinburgh – and entirely paid for by Scottish taxpayers.

With Osborne’s diet of austerity stretching on for the rest of the decade, there is therefore an opportunity for the Yes camp to show whether a different way is possible. And so there is a need for those on the No side to respond. Is independence the only way to get a different welfare state? While the referendum debate is likely to suck up all attention until September 2014, that has not stopped thought being given to the possible options of devolving welfare short of independence. A clear picture is beginning to emerge of the possibilities – and boundaries.

Those boundaries have already been drawn clearly by both Labour and the Liberal Democrats – for a combination of reasons stretching from principle and paternalism to self-interest and paternalism.

The principle relates to the idea that it is the United Kingdom, not Scotland, that is the welfare “community”. It may be that Scots disagree with the way the system is being run at present but – in the words of a report chaired last year by Sir Menzies Campbell, the former Lib Dem leader: “People expect to be able to retire to any part of the UK and receive the same guarantee of the state pension… People looking for work, or caring for relatives, expect to receive equal treatment wherever they live in the United Kingdom.”

That belief is theological for Labour, for whom the creation of the UK-wide Welfare State by the post-war Attlee government is a tablet of stone. The Scottish party’s Devolution Commission, which reported back earlier this summer, noted that “the creation of the Welfare State after the Second World War bound the UK – social classes rather than nations – together”. A separate Welfare State would damage the “loyalties which already bind the British people together” it declared.

The self-interest – at least for Labour – is the damage such a move would do to its representation at Westminster. Full devolution of welfare would inevitably lead to a massive shift of tax powers to Edinburgh – to ensure that Scotland was made responsible for paying for it. So why would the country need all those MPs at Westminster? “They [Labour] are terrified that the more you devolve to Scotland the more you weaken Labour’s voting weight at Westminster,” notes one non-aligned figure who has worked closely with the party.

And the paternalism is the feeling within both Labour and other pro-UK parties that – while they may say they want more powers – people in Scotland perhaps don’t really know what’s best for them. Even with all the oil money, notes Labour, Scotland’s finances would be “vulnerable”, pointing to the high levels of spending here, and a more rapidly ageing population. Better to have the security of a bigger pot – ie, the whole UK – on which to rely.

The party believes firmly in what academic circles have begun to term the “devolution paradox” – the evidence that while Scots say they want more powers for Holyrood, they don’t really want those powers to be used to create a two-tier nation, with different pension arrangements, and different rates of benefit depending on where in the UK you live. Yes, they’d prefer Alex Salmond to set the rules over David Cameron. But they also believe that if someone in Southend moves to Stirling in search of work, their JobSeeker’s Allowance should stay the same. And so Labour’s Devolution Commission concluded: “People need to have the opportunity to see all the arguments to inform themselves of the ‘pros’ and ‘cons’. Welfare devolution is an issue on which public opinion has to be informed, not simply followed.”

Fundamentally, sceptics of welfare devolution point out that in a contest between satisfying the country’s sense of itself and guaranteeing a benefit payment at the end of the week, the latter is always going to win. Or, as authors of a new book on Scottish independence, Scotland’s Choices puts it: “It will be of little comfort to Scots, if welfare provision fails, to be told that it nevertheless reflects their Scottish identity.”

So is that it then? Independence or George? Or is there a magical third way out there that might provide a distinctly Scottish solution? The view among “Devo-Plus” supporters is that while the big contributory and non-contributory benefits such as pensions and the soon-to-be-introduced Universal Credit will always have to stay UK-wide, there is still room for a Scottish “tweak”. There is, it is argued, a disconnect between a Scottish Government which has responsibility for skills and training, and a UK government which runs back-to-work programmes. Thus, the Lib Dems have declared, the Scottish Government should become the “agent” for much of the work of JobCentre Plus and the Work Programme, all the better to align the two.

Westminster could also easily hand over elderly benefits, such as the Attendance Allowance and the Winter Fuel Payment, which overlap with devolved policies on free personal care, other devolution campaigners add. And more radical were proposals floated earlier this year by the former head of the UK Civil Service, Lord O’Donnell, who has suggested that UK wide Department for Work and Pensions (DWP) could agree to operate “service-led agreements” with Edinburgh “to provide services for Scotland which were different from those in the UK”.

In the case of the much-maligned “bedroom tax” such an agreement would involve the DWP agreeing to waive the extra charge for housing benefit claimants in Scotland in exchange for a payment from the Scottish Government’s own kitty. Or, alternatively, such an agreement might even allow Scottish ministers to slash welfare benefits and receive a payment back to spend on something else.

While “discretionary payments” by the Scottish Government to the UK Government could be made to alter some elements of welfare, more extensive devolution of welfare is less likely due to the introduction of the Universal Credit which will subsume Housing Benefit and child tax credit.

Such ideas are likely to receive a further airing in forthcoming think-tank papers, and may well find their way into party manifestos prior to the referendum next year. They will not be nearly enough to satisfy pro-independence voters. The question is whether they will satisfy those people in the middle who may have looked on at Osborne’s performance last week and wished desperately for some kind of alternative. Twelve years on from devolution, Labour’s claim that the UK is the natural “welfare community” is open to dispute. No-one would declare, as Tony Blair told Paddy Ashdown in the 1990s, that “you can’t have Scotland doing something different from the rest of Britain” on tuition fees. And as Scotland gets used to talking and discussing whether or not it should be independent, so claims on the uniformity of Britain’s welfare state may feel outdated too.

As the biggest pro-UK party in Scotland, that task of sorting through this complex web will fall primarily to Labour. Its own internal deliberations on the matter are still on-going. A Vote-No-Get-George is not the kind of message they will want to send to people in September next year.

Twitter: @EddieBarnes23