By ducking the childcare challenge, the Smith Commission falls short on poverty reduction

Will further devolution help to reduce poverty in Scotland? Jim McCormick examines the Smith report to find out.

Will further devolution help to reduce poverty in Scotland? Jim McCormick examines the Smith report to find out.

Ten weeks after Scotland voted to remain in the UK, the Smith Commission has reached agreement between the five parties at Holyrood on further powers to be devolved. It’s the start of the next phase, not an ending. Draft legislation will follow in January and it will be for the next UK government to enact the Smith plan.

JRF’s response sets a central purpose test – will further devolution drive poverty reduction? It proposes further tests, including enhancing social and economic union, alignment with current powers and clearer incentives. Thus, the costs and benefits of investing in better jobs, training and childcare should flow to the Scottish budget. How does the Smith report fare?

In-work poverty

Progress depends on in-work poverty falling and employment rates rising. The Work Programme will be devolved when current contracts end. Previous JRF evidence shows how, in other countries, prospects for those out of work for a long time have improved through better commissioning and accountability of local and regional employment services. Greater flexibility will be needed for those who face additional barriers to work, including fluctuating conditions and lack of adequate childcare, and better in-work support will be needed to support sustainable employment.

The flaw in the Smith report is the decision to leave conditionality rules with Westminster. These cover the range of carrots and sticks associated with participation. So, the Scottish Government will fund the Work Programme and be accountable for its performance, but providers will be expected to apply the UK sanctions system run by the Department for Work and Pensions. That’s a jagged edge that fails the JRF tests of alignment and incentives. It should be changed at the legislative stage.

Housing

On housing, Smith proposes devolving the power to vary housing costs in Universal Credit (UC), plus the ability to change frequency of UC payments, vary who receives UC in the household and pay landlords direct. Together with devolution of discretionary housing payments (DHPs), these changes address major concerns in the Scottish housing sector. Retaining the integrated nature of UC is an important feature of the plan. In time, rebates for a future alternative to Council Tax might be included as well. Increasing the supply of affordable housing should be the first priority when new borrowing and bond-issuing powers come into use.

Joint arrangements for development and delivery of UC will be established between Scottish and UK governments. There are no plans for other elements of UC to vary.

Childcare

While substantial divergence at this point would be premature and expensive, there’s one very significant omission: support with childcare costs. Costs reflect a mix of public and private services, are high by international standards and rise much faster than inflation. A better approach to controlling costs, improving flexible supply and raising quality has to be embedded in any poverty reduction strategy. It’s remarkable that not a single mention of childcare is made in the Smith report. And yet, here’s a crystal-clear example where both closer alignment with the Scottish Government’s childcare offer and stronger incentives to invest more are needed. The answer should be to empower the Scottish Government to vary childcare allowances via UC, on the same basis as housing allowances. A more generous approach to childcare for low-income families is needed across the UK and Scotland could test out how to do that. The Commission appears to have ducked this challenge in the final stages of negotiation.

It may still be possible to pursue a social investment cycle, through support for childcare and skills, if the overall balance of rewards and risks is linked sufficiently to Scottish budget decisions. And the Commission offers the welcome power to design a coherent set of benefits and services for people who are disabled or sick. But as it stands, the Smith proposals land someway short of a great leap forward for poverty reduction in Scotland.