John McTernan: One cost of welfare reform could be end of the Union

When it comes to welfare reform we are well and truly through the looking glass. In a consultation paper issued last week the coalition government offered the same high-flown principles and lack of detail that have come to characterise policy when politicians' ambitions to be bolder than Beveridge are not matched by substance. It is a consultation with no figures for costs and no details of winners and losers.

Since Mr Duncan Smith told the BBC that the figures did exist, there can be only one reason for their absence from the command paper - the Treasury vetoed the publication of them. It's not hard to see why.

The main argument set out by Mr Duncan Smith is that there is a need to make work pay more to get people off benefits. It's not hard to work out that cash incentives like that are more expensive than the current system, and indeed it's straightforward to go to reports that IDS quotes admiringly and spot that he's talking about 3-9 billion of extra spending. With, of course, a pot of savings at the end of the welfare rainbow. I've seen that before. Back in 1997 when Frank Field's plans to reform the welfare state would have cost around 10bn - and that was when 10bn was real money. Ultimately Big Bang welfare reform is usually more bust than bang because it turns out to be much more expensive in the long run than the short term. The best reformers in Britain - Peter Lilley and John Hutton - have been incrementalists for a very good reason.

But Scots should be carefully watching the progress of Mr Duncan Smith's proposals. My guess is that the white paper we are promised before Christmas will more closely follow the lines set out by George Osborne in his emergency Budget and won't reflect the expanse (or the expense) of the consultation paper's aspirations. Too little coverage was given to the proposed changes in social security at the time but they are wide-ranging and, at times, savage.

And worse, Mr Osborne has clearly signalled that if deeper and faster cuts can be found in the Department of Work and Pensions budget then he will be able to reduce the cuts targets for other government departments. This is very serious for Scotland which receives a higher proportion of social security than is justified on population grounds. There are good reasons for this - an ageing population, a higher proportion of people on Incapacity Benefit, the decline of traditional industries and a much larger social housing sector. This means that if the Coalition's drive to cut cash spent on social security by up to 10bn is successful then over a billion will come from Scotland. And just think for a minute what 1 billion actually is - it's 1,000 a year from a million people - and there aren't a million people in Scotland who wouldn't miss a thousand pounds. At the least the economic consequences of losing that money will be severe, but the social and political repercussions will be massive.

Just start with Housing Benefit. The first proposal is to time limit it so that after a year claiming it's cut to 90 per cent of your rent, the idea being that the threat of having to find cash from your benefits to support your rent will force you into work faster. The reality - rent arrears. And after rent arrears, eviction. So, within a year to 18 months of this ‘reform' expect to see lone parents made homeless by the system.

And there will hard cases - someone will turn out to be a war widow rather than a dole cheat. Then the fireworks will start. But there's worse. The Coalition wants to bend Housing Benefit to ‘incentivise' prople to move out of homes which are ‘underoccupied'. What does that really mean? Mums and Dads in settled council estates - like Oxgangs in Edinburgh - who have done the right thing all their lives and have seen their kids grow up and successfully move out and on, will have their benefit cut to force them to leave the family home.

So there will be pensioners evicted too. This is human cost of an approach to welfare reform in which claimants are demonised and all relationships are monetised. Remember Mr Osborne justifying this radical change on the basis of one case in central London and the cost being passed to hard-working families? Well it will be people who have worked hard all their lives who will be on the end of this. Mr Osborne and Mr Duncan Smith have torn up Peter Lilley's first two laws of welfare reform - don't do anything to pensioners, and never take anything away from existing claimants.

Then there are other changes potentially even more high-profile. Disability brings with it extra costs. Through Disability Living Allowance - a benefit introduced by the Tories - those costs are partially reflected, and it is paid irrespective of whether you are in work or not, as those living costs are there whether you are working or unemployed. Mr Osborne has targeted this for a 10 per cent cut in budget and changes to improve work incentives. The latter thought is somewhat opaque - does he intend to increase it for workers, or put in taper that removes it from more highly paid people? Whatever his thinking, disability benefits are the third rail of British politics - touch it and you die.

These problems will manifest themselves across the country, but in Scotland there is an added twist. Social Security is the single strongest strand of the ‘social union' that binds the UK together.

These are universal British benefits and they more than anything else show how we are stronger together, weaker apart. For the very fabric of the welfare state to be unravelled in this way starts to unpick the place of Scotland in the UK. David Cameron has stated clearly - and provocatively - that services cut now will not be reinstated when the economy recovers.

This is the first time any British Prime Minister has promised that the future will be worse than the past. The shrunken and punitive welfare state is at odds with the values of Britain and the values of Scotland. While Merseyside and London have no choice but to endure, Scotland has an escape hatch.

Will Iain Duncan Smith be the unwitting father of separatism?