What does UK benefits overhaul mean for Scotland?

The health and disability tests for those receiving Universal Credit are to be tightened, under plans set out by Liz Kendall, the UK Work and Pensions Secretary.

In a Green Paper setting out the UK government's options and plans to reform the welfare system and bring down its cost, she said assessments will be reduced, and that reviews of claimant cases will be stepped up.

As that is intended to reduce the bill for such benefits, with a likely knock-on effect for Holyrood's block grant, the plan is unclear about how the changes will integrate with disability and health benefits funded through Holyrood.

Kendall stepped back from a plan, as reported, to freeze the level of Personal Independence Payment (PIP), which would have been passed on in a cut to Holyrood's block grant.

But other measures will require co-ordination with Scottish ministers, and are likely to reduce the Treasury funding allocated to them to pay for welfare benefits.

The details of that will become clearer when the Chancellor, Rachel Reeves, delivers her Spring Statement on public finances on 26 March, alongside an updated assessment from the Office for Budget Responsibility.

The 'Pathways to Work' Green Paper is intended to simplify the system of assessing people for working-age benefits, where they have disabilities and health-related conditions.

Universal Credit, which is entirely reserved to Westminster, will no longer have a Work Capability Assessment from 2028, which has been criticised for the way in which people are treated.

Instead, the UK system will rely on the assessment for Personal Independence Payments. That will raise the threshold of qualifying for the daily living element of the benefit.

There will be a more rigorous system for reviewing claims to see if people remain eligible. Those with the most severe disabilities will no longer have to go through reviews.

However, PIPs are being replaced in Scotland by a Scotland-only Adult Disability Payment, and the migration of cases will soon be complete.

The Scottish government has sought to apply its new devolved powers over welfare benefits with greater dignity for claimants and less intrusive assessments than they have had from the UK Department of Work and Pensions.

It is unclear how Scots will be assessed for Universal Credit, which is reserved to Westminster.

The plans acknowledge the need to work with the Scottish government and other devolved administrations, but do not suggest how different assessment rules will be applied.

There are two main types of benefit for those with disabilities. One used to be known as incapacity benefit.

As Universal Credit has rolled together benefits into a single system, it has included that element, usually aimed at those unable to work.

That's not to be confused with benefits that go to people who can work, and many of them do, while receiving one of three payments:

• Disability Living Allowance (DLA) has been a UK payment, which is being phased out and replaced.
• Personal Independence Payments (PIP) are replacing DLA. These are intended to help working-age people with the extra costs of living with disability or a health condition.
• Adult Disability Payment (ADP), is replacing PIP and DLAs in Scotland. It is similar to PIP, but it has different processes for applications and for renewal, which are intended to treat people with more dignity than the tests used by the UK department for work and pensions.

By last autumn, there were still 80,000 people on PIP in Scotland. The Fraser of Allander Institute says that around 9% of people of working age receive some ADP, less than 4% receive PIP and less than 1% receive DLA.

Put together, the Strathclyde University economists say that nearly 14% of the working age population in Scotland are on disability benefits, other than the element that comes within Universal Credit. In England and Wales, the share of working age people on PIP is closer to 9%.

According to the Scottish Fiscal Commission, using data up to last autumn, there is a significant difference in the uptake of these benefits, which could reflect a population with worse health or that it is easier to apply in Scotland.

The figures don't suggest a wide difference at the point of applying, but instead at the renewal stage.

With a light touch approach to checking on eligibility, only around 2% of people receiving Scotland's ADP cease to receive it after a review, but the checks done for PIP in England and Wales lead to 16% no longer qualifying.

Kendall also announced £1bn of additional support to help people get into work, including work coaching sessions and interviews to consider goals, ambitions and obstacles to work.

Some of that will apply in Scotland, but will not necessarily apply where the Scottish government has had devolved powers since 2016.

It has responsibility for employability for those with disabilities or at risk of long-term unemployment, but not for those using Jobcentres or out of work in the short term.

The reforms will give people throughout Britain who are receiving benefits an opportunity to try working for a limited time, without the risk of being taken off those benefits.

UK ministers are concerned about the growth in those applying and qualifying for benefits paid for disability and health conditions, and about the number of people who are not working due to long-term illness.

They want fewer people to be "economically inactive", which would help grow the economy as well as securing more income and security for such people.

They also want to reduce the welfare bill and avert the very high costs forecast for it if current trends continue to the end of the decade.

Those trends in the number claiming benefits and the number unable to work due to long-term illness picked up considerably following the pandemic - much more than similar countries. And while older working-age people are the main ones claiming, the rise has been marked among younger adults.

One of the unexpected announcements in the Green Paper is that young people aged up to 22 will no longer be eligible for the health-related element of Universal Credit - effectively trying to push more of them into work.

How could this affect Scotland? The reforms are intended to take £5bn out of the benefits bill by 2029-30. But it's not clear if that is expected to see the bill fall, or only that it does not rise as fast as projected.

A much clearer picture of the financial implications of the announcements is expected from the Chancellor and the Office for Budget Responsibility next week.

As the UK government is reducing the amount it spends on the ill-health element of Universal Credit, that will apply to Scotland in the same way as the rest of the UK, and it need not affect Holyrood.

As PIP is expected to cost less in England and Wales, due to a higher threshold for eligibility, a cut can be expected in the money transferred to the Holyrood budget.

That block grant includes the amount of money that would be spent on Scots claimants if PIP had not been devolved.

That devolved power gives the Scottish government the ability to choose whether to be more or less generous with its rules and reach for welfare benefits.

It can put more money into benefits, to avoid having to cut them for Scots. And in some cases, it mitigates the cuts made at Westminster as they affect Scots, by finding funds from other public spending.

On PIP and Adult Disability Payments, it would be up to the Scottish government to decide if it applies the Liz Kendall reforms in similar or different ways, or seeks to avoid the cut by finding more money elsewhere for welfare.

The Scottish government is already choosing to spend considerably more than the UK government hands it to replace Britain-wide benefits.

Adult Disability Payment costs the Scottish government £193m more than it receives, which is money taken from other spending. That is forecast to rise to £314m next financial year and to £380m by 2029-30.

There are other benefits which have no equivalent in the rest of the UK, the biggest being the Scottish Child Payment.

That welfare regime is seen as the Scottish government having different priorities from the UK one, treating people with more respect, dignity and fairness, and devolution in action. But it comes at a price.

According to the Scottish Fiscal Commission, ministers were already choosing to prioritise welfare payments by finding an additional £900m last financial year from higher taxes and from raiding other spending.

That rises to £1.3bn next financial year, 2025-26, and then to £1.5bn in 2029-30.

That is similar to the amount spent on universities in Scotland, rising close to the figure spent on Police Scotland. It's a sizeable bite of Holyrood's budget.

And that is before Scottish ministers and MSPs decide how much of Liz Kendall's reforms and Rachel Reeves' cuts they are going to apply, adapt, mitigate or somehow seek to avoid.