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Budgets are the time when we expect to see big numbers announced to impress on us all how good the government are at spending money on the things that matter.
The big numbers also tell us quite a lot about the priorities of a government at a given point in time.
In this article we focus on new spend has been allocated to tackle the issue of low income and poverty, including child poverty for which there are legislative targets to be met within the next couple of years.
Helpfully, this year, Annex A of the budget includes the catchily named “Portfolio assessment of Equality and Fairer Scotland impacts of the Scottish Budget”. Fairer Scotland is term that refers to efforts to reduce socio-economic disadvantage, which is understood both in terms of low income (i.e. poverty) and broader issues such as area deprivation, or health inequalities.
Policy for the future
Many of the powers that the Scottish Government holds are for policy areas where the impact on people’s lives may not be immediate. For example, one of the largest new allocations mentioned in Annex A in relation to socio-economic disadvantage is £275 million “over five years to support community-led regeneration, town centre revitalisation and 20 minute neighbourhoods…”. Regeneration is a long process, with uncertainty over outcomes, yet is likely to improve the quality of life of those who live in the areas.
Another big number in Annex A is the £125 million allocated for “employability and skills provision which will have a significant impact on improving labour market opportunities for those who face challenges within the labour market”. Benefits from this policy are likely to be realised, hopefully, within a couple of years and impact on those currently excluded from the labour market (although how many we don’t know).
These allocations show that the government is putting money in places where it should make a difference in the future. But how about the immediate pressures that households in Scotland are facing due to the impact of the pandemic?
Policy for the now
The most direct way of protecting incomes is by using the tax and social security system. This has an immediate impact on the money that households have at their disposal. In this Budget you would have expected particular attention on those worse affected by the pandemic.
We aren’t the first point out that whilst we may have all been weathering the same storm over the past year, we certainly haven’t all been in the same boat. Some people have lost their jobs and with it much of their household income. Others have switched to home working, and have saved money they used to spend on commuting. At the UK level, the Resolution Foundation analysis has shown that those who were already in higher income households have been much more likely to save in this crisis than those in poorer households where instead debt accumulation has increased[1].
The social security system is designed to target financial resource directly to those on the lowest incomes and you would expect this would be a front runner if the Scottish Government wanted to help those struggling financially. Scotland is in its early stages of operationalising its social security system, but we saw in this Budget the initial allocation to the Scottish Child Payment of £68 million which will be up and running by the start of the financial year for children under 6.
Whilst not a new announcement, it is welcome to see this new money allocated. But there was not any new money channelled through this route, despite recent forecasts by the Resolution Foundation which suggest that child poverty in Scotland could increase significantly over the next few years[2].
What new policies were announced to mitigate household financial loss?
However, there was a big number in yesterday’s Budget aimed at protecting household incomes: the return of the Council Tax freeze. This was a feature of many post-financial crisis budgets. Then, as now, there is much debate about who benefits most.
You can look at this in two ways. Council Tax is broadly related to income, in that those on higher incomes tend to live in bigger houses. So, in cash terms, a Council Tax freeze will benefit those on higher incomes most.
The counter to this is that for lower income households, Council Tax is larger proportional to overall income than for richer households (i.e. it’s regressive, hence why most agree it should be replaced). So proportionally, a council tax freeze is worth more to lower income households.
However, one thing that all agree on is that it is least effective at helping those in the lowest income households as most should already be receiving protection from the Council Tax Reduction scheme. Many receive a full reduction (i.e. pay no Council Tax) and those who only receive partial support would not be excepted to pay more even if their Council Tax bill increased – and therefore they are getting no benefit from freeze either.
Competing priorities?
Even for those who do benefit, the amounts of saving, per household, from the council tax freeze are distinctly underwhelming. The average saving, per household, appears to be in the region of 50p a week. Yet the cost of the policy overall is significant at £90m.
Could that money have been better spent to target money at protecting the income of those who need it the most?
The Scottish Child Payment provides one avenue where that money, arguably, could have been much more effectively spent.
Had the £90m instead been allocated as a one-year bonus to the Scottish Child Payment, eligible children could have received an additional £13 a week. That is a more than a doubling of the payment already on the table for the next financial year.
There are plenty of other places that the £90m could have been spent, including on the other devolved social security benefits related to disabled people and carers. These households also tend to be at the lower end of the income distribution and have had enormous pressures to deal with during the pandemic due to restrictions on social care provision.
It is therefore hard to understand from an objective point of view why the Council Tax freeze was prioritised when there are other, arguably more effective, means of protecting the incomes of those who are most likely to be struggling because of the pandemic.
And this seems particularly odd when tackling child poverty is a stated priority of this government with legislative targets to meet. Yet it did not appear to be a priority of this year’s budget. To borrow the title from last week’s Social Renewal Advisory Board report – If not now, when?
[1] https://www.resolutionfoundation.org/publications/caught-in-a-covid-trap/
[2] https://www.resolutionfoundation.org/publications/the-living-standards-outlook-2021/
Authors
Emma is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute