Devolving benefits could be positive for Welsh budget, according to report

Researchers investigate financial implications of transferring welfare powers to Wales

Giving Wales the same powers over benefits as Scotland could boost the Welsh budget by £200m a year, according to new research from Cardiff University’s Wales Governance Centre.

The finding is revealed in a report which examines how Wales’ finances could be affected if the Welsh Government was given the same control over welfare as the Scottish Government.

In 2016, the UK Government gave Scotland control over 11 welfare benefits and the ability to create new social security benefits in devolved policy areas.

An equivalent package of powers would give Wales responsibility for Disability Living Allowance, Personal Independence Payment and Attendance Allowance, along with smaller benefits including the Cold Weather Payment, Discretionary Housing
Payment and Winter Fuel Payment.

Spending per person on these benefits are higher in Wales, but has fallen from 155% of the English level in 2010-11 to 150% in 2017-18. Devolution would entail an initial transfer of funding from the UK government, with different options for how arrangements would change in future years.

The researchers found that using the same funding formula as Scotland could result in a budget surplus for the Welsh Government. Given projections of future need in Wales, no funding option analysed would make devolution financially unsustainable.

First Minister Mark Drakeford has previously said that he wants the case for the devolution of the administration of welfare benefits to be considered. The research has been submitted as written evidence to the National Assembly’s Equality, Local Government and Communities Committee to form part of their inquiry, “Benefits in Wales: options for better delivery”.

Guto Ifan, Wales Fiscal Analysis Research Associate, said: “Because of the higher prevalence of poverty and disability in Wales, it is often assumed any form of welfare devolution would be detrimental to Wales and the Welsh budget.

“But we have researched a number of potential outcomes of an agreed deal with Westminster and found no evidence to suggest devolving benefits to Wales would be financially unsustainable. In fact, if the same benefits as Scotland were governed in Wales, along with a similar funding formula, it could actually lead to a positive financial outcome.”

He added: “Our research doesn’t focus on the wider arguments for and against the devolution of welfare. But it does suggest that it shouldn’t be dismissed on financial grounds.”

Researchers found if the method agreed to calculate Scotland’s settlement – called the Indexed Per Capita method – was used in Wales, this would result in the best financial outcome, with a projected surplus of £200m a year by the end of 2023-24.

The worst result for Wales would be under the Barnett formula, with the Welsh Treasury projected to be better off by an average of £14m a year up to the end of 2023-24.

Cian Siôn, Wales Fiscal Analysis Research Assistant, said: “The formula used for Scotland, or a variation of the UK Treasury’s formula currently used for tax devolution for Wales, would represent the least risky and potentially beneficial options for Wales. Even if the simple Barnett formula was used, we find that Wales would not be systemically worse-off as a result of welfare devolution.

“The huge differences between each scenario show that much would hinge on negotiations with Westminster to ensure that Wales was given the best settlement. The precedent set by Scotland could form a key part of those discussions.”