Day: July 28, 2024

As we highlighted in last week’s blog, we recently saw the state opening of Parliament at Westminster which allowed the new UK Government to set out their legislative programme (write MAIRI SPOWAGE and HANNAH RANDOLPH of Fraser of Allander Institute).

Along with a huge amount of pomp, ceremony and grand tradition, this is the first formal expression we have had of how the Labour manifesto will be turned into government policy and action.

The King’s Speech is focussed on legislative changes, so other areas where policy changes are likely be taken forward without legislative changes (perhaps through public service reforms, or simply changes in spending, such as health) always feature less prominently.

However, there were plenty of bills to examine – 40 bills were presented by the speech on 17^th July. This is the highest number of bills to be presented in a monarch’s speech for almost 20 years.

Which of these bills are relevant to Scotland?

The patchwork of devolution in the UK means that the extent to which these bills are relevant for Scotland is a complex picture. The chart below shows the spread, which demonstrates that in theory 22 of the bills are likely to impact upon legislation in Scotland.

Chart: Number of bills in the King’s Speech by territorial reach

Source: UKG

Digging into the detail of each of these bills shows that the impact on Scotland gets more complicated.

One of the UK wide bills is the National Wealth Fund, which will bring together some existing initiatives such as the UK Infrastructure Bank and the British Business Bank, as well as additional capitalisation of £7.3 billion over the course of the next parliament. As well as this additional public investment, the idea of bringing these different organisations together is to make the business support landscape simpler for businesses, to “create a single coherent offer for businesses and a compelling proposition for investors”.

Leaving aside the extent to which this level of extra investment will move the dial on investment overall, there is also a question whether this is going to actually simplify things for businesses in Scotland. Economic development is devolved, and we have a number of bodies that provide potential support, including the Scottish National Investment Bank and the three Enterprise Agencies.

A common complaint from businesses, particularly those with limited capacity, is the complex landscape for business support. Therefore it will be interesting to see the cross-governmental working (if any) on this to simplify things for businesses right across the UK.

Another key measure is on planning. The Planning and Infrastructure Bill proposed in the King’s speech “is expected to extend and apply to England and Wales. Some measures may also extend and apply to Scotland”. It is not clear from the explanatory notes to the King’s speech what this will actually mean for Scotland, although there is some mention of ensuring grid connections are available in a timely fashion (which would be a reserved issue in the energy infrastructure space) may well be the relevant point.

Again, the devil will be in the detail of the bill, and the extent of cross-governmental working, for us to understand how this could change things for businesses operating in Scotland.

The Crown Estates Bill does not apply to Scotland because it is devolved: but our understanding from the nots to the Bill that the provisions in the Bill for England, Wales and NI are essentially bringing in the same fiscal flexibilities that exist for the Crown Estate in Scotland.

The  Hillsborough Law is the one which currently has an indeterminate territorial reach, and is one of the more vague bills included in the list of 40. This will “place a legal duty of candour on public servants and authorities” to “address the unacceptable defensive culture prevalent across too much of the public sector – highlighted by recent reports such as Bishop James Jones’s report into the experiences of the Hillsborough families and the recent Infected Blood Inquiry report”. This is fulfilling a manifesto commitment, but a concern could be that legislation to change culture may be ineffectual. This is in no way to belittle the catastrophic failures in the system that happened in these instances, just a question over whether this kind of law is the way to address it.

These are a few examples, but the detail of all the bills and crucially how they are implemented will be important to understand the actual impact on Scottish law, businesses and citizens.

Two child benefit limit causes first Labour rebellion

This week, we also saw the vote on the King’s speech – the first vote for the Labour Government, and, perhaps predictably given the size of their majority, the first rebellion from a few backbenchers.

The SNP laid a motion to amend the king’s speech to include the abolition of the two-child benefit limit. The amendment was voted down, but removing the two-child limit is now being widely debated particularly because seven Labour MPs voted for the amendment and have had the whip withdrawn. More broadly, it has drawn attention to what the new Labour government’s plans for an anti-poverty strategy might be.

The two-child limit applies to households with three or more children receiving Universal Credit or tax credits. Both give households additional amounts for the first and second child, but no further benefits or credits for the third or subsequent children.  It does not impact on Child Benefit.

The two-child limit was introduced in 2017 and applies to any child born after 6 April 2017. As time goes on and a greater proportion of children fall into that category, more families are affected.  

HMRC and DWP report that 440,000 households were affected as of April 2024, of which 26,000 are in Scotland. 

Estimates from the Institute for Fiscal Studies show that the two-child limit currently costs affected households £3,400 per year, per child on average. This is likely one driver for a widening gap in poverty rates for families with one or two children versus those with more.

The Scottish Government has introduced a new benefit, the Scottish Child Payment, as part of their efforts to reduce child poverty. To what extent does the Scottish Child Payment mitigate the effects of the two-child limit in Scotland?

 The Scottish Child Payment (SCP) is a £26.70 per week, per child under 16 benefit available to households in receipt of qualifying benefits like Universal Credit. SCP does not restrict the number of children in a household who can receive the benefit, nor does it have a lower amount for second and subsequent children.  

SCP is therefore likely to mitigate the effect of the two-child limit on households in Scotland to some extent. Households receive about £1,400 per year for each eligible child from SCP, which does partially offset the £3,400 they might be able to claim for third and subsequent children in the absence of the two-child limit.  

 Chart 2: Child poverty rate by number of children in the household, Scotland  

 
Source: Scottish Government and Department for Work and Pensions 
Notes: Child poverty rates are averaged over three years of Family Resources Survey data. For the last three years, figures represent a two-year average excluding the 2020-21 data due to data collection issues associated with the Covid-19 pandemic.  

 The mitigation of SCP, plus other factors, may contribute to lower gaps between child poverty among children in households with 3+ children versus in households with fewer children (see chart).  

 The gap between poverty for children by family size has grown since about 2012-15 for the UK as a whole. Just over one in five (22%) of children in households with only one or two children were in poverty in 2020-23, compared to nearly one in two (44%) of children in households with more children.  

 In Scotland, however, there is slightly less of a gap, albeit one that has grown more in the last couple of years. 19% of children in households with 1-2 children live in poverty, compared to 38% of children in households with more children.  Because some of the effects of the two-child limit are mitigated by SCP, removing the two-child limit might have less of an effect in Scotland than in the rest of the UK – but it would still have an impact. 

The Scottish Government has estimated that about 10,000 children would be taken out of poverty in Scotland if the two-child limit were removed, many in households with 3+ children.  

For context, that would reduce child poverty in Scotland by about 1pp. That’s on top of an estimated 60,000 kept out of poverty by the SCP in 2024-25. 

What next for the two-child limit?

 The Labour Leadership are sticking to the manifesto on which they were only recently elected: that they would like to remove the two-child limit in time, but that they do not think they are in a position to remove it just now due to the public finances.

The cost is estimated at about £3.4b per year in the long run, about 3% of the working-age benefit budget. So while fiscal responsibility is to be lauded, this would be a fairly minor policy change in fiscal terms in exchange for progress on child poverty at the UK level.  

The cost of these increased benefits for households in Scotland would still fall on the UK Government rather than the Scottish Government, since Universal Credit and tax credits are both reserved.  

Labour have also pointed out that removing the two-child limit is not a silver bullet, and that they want to take the time to develop a coherent anti-poverty strategy across different policy areas.  

As usual, we hope that such a plan would be evidence-based. There may also be opportunities to learn from devolved policies like SCP that should be taken up by the new UK Government.