I welcome the opportunity to give evidence to the committee. At the outset, I make it clear that the Government is committed to making available as much information as possible on the financial implications of the Welfare Reform Act 2012, but I acknowledge that, as I think has been shared with the committee in relation to its analysis of the Welfare Reform (Further Provision) (Scotland) Bill, we require further detail to enable us to provide all the information and the financial assessment that we would want to provide to the committee. However, I am committed to providing that and I will work to ensure that that happens.
We have been pressing United Kingdom ministers to provide details on their proposals. That was most recently communicated by Mr Matheson at the joint ministerial committee in London on 23 May. Some of the information is beginning to become clearer, particularly in relation to universal credit, with the publication of draft regulations by the Department for Work and Pensions. There was also an invitation to my officials to participate in a DWP workshop on 15 June to discuss a series of regulations. We are in dialogue with the DWP on issues in connection with data sharing, which is absolutely material to the analysis.
Having said all that, I point out that we still do not have full clarity on all aspects of universal credit, which makes it difficult for us to provide the type of financial assessment in which the committee has a legitimate interest. However, I can share some of the financial implications with the committee. We can see a reduction of approximately 7 per cent in the social fund budget from previous years; a shortfall against current levels of spend of potentially up to £250 million when the personal independence payment replaces disability living allowance; and a reduction of about 10 per cent, or about £40 million, following the decision to abolish council tax benefit and to transfer the budget to the Scottish Government. In our view, the budget transfer should reflect the level of need in Scotland and the full administrative costs of implementation. That is of course an issue that has been pursued with the United Kingdom Government.
There is also the estimated potential removal of about £100 million a year from the Scottish economy as a result of the reforms to housing benefit, and that figure does not take account of the potential knock-on effect on landlords’ rental incomes, an issue that has been raised with the committee.
The Administration has taken several steps to try to mitigate the effects of welfare reform in Scotland. We have taken action to provide universal free prescriptions and to provide early learning and childcare opportunities for vulnerable two-year-olds, a programme that will be expanded following a £1.5 million a year investment by the Government in the next three years. Members will also be aware of the council tax freeze, and we have taken actions to tackle homelessness. We are working with the Convention of Scottish Local Authorities to develop a better understanding of the impact of universal credit on local authorities. We expect there to be some local authority-led pilots in Scotland to test universal credit delivery models. The housing demonstration project in Edinburgh will also help us to better understand the impact of universal credit on the ground, which will help in our further analysis.
Those are some of my comments at the outset. As I said, I remain committed to providing a robust analysis of the implications for our budgets and programmes of the welfare reform programme. However, we rely on the UK Government for some further detail and information to enable us to do so.