The Scottish Government previously committed to using CPI for the ‘foreseeable future’. SCoSS accepted this when it reported to the Scottish Government in its 2019 up-rating report[33] while acknowledging that CPI could potentially be improved upon in time. Section 3 of the Section 86A report sets out the Scottish Government’s policy position and current information on possible alternative indices. Having further discussed this with officials[34] we can see no grounds to change from CPI currently and recognise that constraints such as agency agreements with DWP may apply (see Annex A), but agree with the Scottish Government that this should remain actively under review in light of developments concerning other indices.

SCoSS recognise the challenge the Scottish Government faces in identifying a suitable measure for an annual up-rating of social security payments, and that in periods of high volatility and/or sustained high inflation the process of annually up-rating payments may not keep pace with price increases.

In March 2022, the Scottish Government made provisions to uprate certain devolved forms of social security assistance by 6%, rather than the September CPI rate of 3.1%. This was in response to the significant increase in the cost of living reflected by the February 2022 CPI figure of 6.2%.[35] Inflation continued to increase in the months after February 2022. By the time the up-rating came into effect (April 2022), however, the CPI 12-month rate had reached 9.0%. By September 2022 the CPI rate was 10.1% and has since reached 10.5% in the 12 months to December 2022 from a peak of 11.1% in October 2022 (latest figures at the time of writing).[36]

This means that, during the period between April 2022 and April 2023, recipients of those social security payments which were up-rated[37] faced increases in prices month on month which far outpaced the up-rating those payments received[38], and this risked a reduction in support for an adequate standard of living and contribution towards reducing poverty (principle (e)).

Both the UK and Scottish Governments responded to the high inflation rate with a range of measures, including a number of Cost of Living payments[39] and doubling the value of the December Scottish Child Payment Bridging Payment.[40] However, people receiving social security payments had already been facing the effects of high inflation for some months prior to the introduction of those measures.

The Treasury publishes forecasts for the UK economy which summarise published views of various forecasting organisations. Although CPI is projected to fall in 2023, this is from a forty-year high and the OBR’s projected 7.4% 2023 calendar year inflation rate will continue to have a significant impact on the value of all incomes in real terms.

Observation 2: We welcome the measures the Scottish Government took in 2022 in response to the very high levels of inflation. The Scottish Government may consider that a review of the different responses to high inflation would be timely and helpful in supporting planning for the next and future years. This could include consideration of the net effect of the levels of inflation in the 2022-23 financial year, planned up-rating and the additional cost of living payments.

Third sector organisations have raised questions about the overall value of social security payments to recipients against the expected ongoing price rises throughout the coming year. The proposed up-ratings have been welcomed as a minimum required action but there have been calls for payments to be increased further in order to address the cost inflation of particular pressure points such as fuel and food.[41]

Recommendation 1: In view of the current and projected high level of inflation and the time taken between the up-rating decision and when an up-rated benefit is received we invite the Scottish Government to set out any actions that might be taken to maintain the value of recipients’ social security payments or otherwise help people manage rising costs between annual up-rating exercises.

In response to a previous SCoSS recommendation that the Scottish Government present plans to mitigate the adverse effects of volatile inflation on people receiving devolved benefits, should this occur the Scottish Government said it would consider how this could best be achieved if inflation became volatile in the future.[42] Again, it is helpful to acknowledge the constraints on action that might apply (annex A).

[33] SCoSS, Uprating Policy Paper and Analytical Report, 2019

[34] During SCoSS’ discussion with Scottish Government policy officials at its Board meeting held on 15 December 2021 it was explained by officials that the UK Statistics Authority was investigating amending the methodology for indices, but due to the links between CPI and UK Government Bonds this would unlikely be further investigated by the UK Government until 2030 when the current issue of Government Bonds expire, whereby more regionalised indices may also be investigated.

[35] Further response to Scottish Government (www.socialsecuritycommission.scot)

[36] Consumer price inflation, UK (Office for National Statistics)

[37] A number of other social security payments received no up-rating whatsoever.

[38] The Office for National Statistics provides a CPI Index each month, changes in which reflect inflation (the CPI Rate). When the April 2022 up-rating amount was decided (September 2021), the index was at 112.4, and it had reached 120.0 by the April it was introduced.

[39] Cost of Living Payment (www.gov.uk)

[40] Cost of living crisis (www.gov.scot)

[41] See for example Women and the Cost of Living: A Crisis of Deepening Inequality, Engender, October 2022, Joseph Rowntree Foundation statement, among others.

[42] Scottish Government response to recommendation 4, report 2019: Uprating 2019: SG response to report (www.gov.scot)