Experts warn Scottish benefit claimants could end up worse off once Holyrood is handed welfare powers

The Scottish Parliament is expected to gain control over carer's allowance, industrial injuries benefit and severe disablement allowance under the powers negotiated in the Smith Commission on Scottish devolution.

This will allow MSPs to raise or cut these benefits in line with the specific needs of the Scottish people, and "top up" payments from the new universal credit (UC) which will remain the purview of the UK Government.

However, some benefits will be treated as income when deciding how much UC should be awarded.

If the Scottish Parliament increases its devolved benefits then claimants will get a pound-for-pound reduction in their UC, the Scottish Parliament Information Centre (Spice) has warned.

Holyrood could then top up claimants' depleted UC from its own budget - but the SNP said this goes against Smith's principle that additional income for the recipient should not result in money being offset from somewhere else.

UC will replace jobseeker's allowance, housing benefit, working tax credit, child tax credit, employment and support allowance and income support across the UK.

Scottish Secretary Alistair Carmichael pledged to investigate Spice's research at Holyrood's Devolution (Further Powers) Committee today, insisting "it does not make sense" and could be an "unintended consequence" of the Smith proposals.

Spice said: "If a UC claimant is receiving any of the reserved benefits, and they have been increased by the Scottish Parliament, then they will get a reduction in their UC award pound-for-pound.

"This could mean a UC recipient is worse off.

"However, this eventually could be offset if the Scottish Parliament decided to increase the UC award as well."

Committee convener Bruce Crawford, an SNP MSP, said: "The Smith Commission report actually says: 'Any new benefits or discretionary payments introduced by the Scottish Parliament must provide additional income for the recipient and not result in automatic offsettings.'

"So it doesn't actually talk about the top-up process or the devolved powers, so I think we need a bit of clarity around that area because otherwise what would be the point of having the powers to do that."

Mr Carmichael said: "Exactly, without hearing the reasoning behind that conclusion I couldn't really offer you any explanation for it.

"It doesn't make sense to me, but it may be that our old friend, the law of unintended consequences, is at play here and if that is the case then all the more reason that we have proper scrutiny of the draft clauses when they come forward."

Giving evidence to the same committee, Deputy First Minister John Swinney said: "I think that would be a travesty if that was the case.

"The purpose of section 55 was to put into the Smith Commission report a guarantee that if the Scottish Parliament was to decide to do anything in relation to welfare, then the individual who was to be the beneficiary of that should get that benefit."

He added: "To me it's pretty clear that anything that we do within the Scottish Parliament should not see the benefit of that undermined or negated in any way as it affects the individual.

"Without wishing to tread over the line of my participation in the Smith Commission, that was certainly my view of the purpose of paragraph 55."

The Smith proposals could also contain a benefits "elephant trap" for the Scottish Government if it continues to pursue divergent policies on welfare from the UK Government, Conservative MSP Alex Johnstone warned.

He said the UK Government is trying to reduce dependency on benefits, cut demand and limit cost, and accused the Scottish Government of doing the opposite.

If the UK benefit bill goes down there will be less money for Scotland through the Barnett formula, but if Scotland increases benefit demand it could leave Holyrood underfunded, he said.

Mr Carmichael said the Scottish Government would ultimately be held to account if such a situation emerged.

Mr Johnstone said: "Having spent three years on the Welfare Reform Committee, I have seen the process of divergence that has happened in relation to welfare already and the proposals under the Smith Commission open that up quite significantly.

"Now there is a determination to cling to the Barnett formula, almost a white knuckle death grip in some cases.

"But as we go towards the proposals contained in the Smith Commission, particularly in relation to working age benefits, there is a significant divergence in policy already where south of the border there is a policy of reducing dependency and demand reduction in order to limit costs.

"Whereas there is a priority to do something different - rather the opposite - in Scotland.

"As we move forward with this are we not heading towards a Barnett formula elephant trap where the amount of money allocated in UK budgets for working age benefits in particular will fall away, while Scotland may simply pile on demand and find itself underfunded."

Mr Carmichael said: "Well, that's the beauty of devolution isn't it?

"You make your spending decisions and now you're going to have to account for that in your funding decisions as well.

"You can only spend the money once, and if we have learned nothing else over the last 10 years we should have learned that."