The cost of caring: Welfare state, affordability and independence

The future of the welfare state - its structure, priorities and affordability - was at the heart of the second Scotland Tonight debate on independence.

Social protection budgets represent almost 40% of all public spending in Scotland, more than health and education expenditure combined.

On Thursday night, Deputy First Minister Nicola Sturgeon and Scottish Labour deputy leader Anas Sarwar clashed over what a Yes vote in the 2014 referendum would mean for the welfare state.

The social democratic consensus in Scotland has always prized the protection of the vulnerable, in particular the infirm, the elderly, the unemployed and the disabled. However, questions about how much the state should do and how key services can be funded have loomed large in this age of austerity. The referendum has only thrown these issues into sharper relief.

David Phillips of the independent think tank the Institute for Fiscal Studies (IFS) said: "A large part of benefit spending goes on older people, so as the population ages that will put increasing pressure on the welfare budget. And with the population expected to age more rapidly in Scotland, this could occur more quickly in Scotland than the rest of the UK."

According to the IFS, welfare spending in Scotland sat at £17.2bn in 2011/12, with £6.3bn going to fund state pensions. Other prominent expenditures included £1.7bn for housing benefit, £1.3bn for disability living allowance and £752m for pension credit.

These benefits are the responsibility of the UK Government. The Scottish Government is responsible for additional expenditures, such as £427m for free personal care and £249m for concessionary travel. A further £5bn is managed by local authorities throughout Scotland.

Supporters of independence point to the apparent discrepancy between what Scotland puts into the UK Treasury and what it receives in return. Scotland, they underscore, contributed 9.9% of all UK revenues in 2011/12 while enjoying only 9.3% of total public expenditure.

Supporters of the union, however, highlight figures showing that Scotland receives £1200 per-capita-per-annum more than the UK as a whole, adding that benefit spending is two percent higher north of the Border and four percent higher on old-age benefits.

The UK Government's pension plans will see a new flat-rate pension of £144 per week from 2016, although coalition ministers have said they cannot pledge that the "triple lock" - the guarantee that the state pension will rise by the earnings, inflation or 2.5% - will continue beyond the current Parliament.

Private-sector pensions are also a key issue for many, with some final salary schemes running significant shortfalls. Regulation has been touted at the EU level that would require companies operating cross-border final salary schemes to address these deficits at the point of independence.

David Wood, from the Institute of Chartered Accountants of Scotland, told Scotland Tonight: "If you'd to fund the deficit on day one or if you have a period as short as three years, the figures that we're talking about, you really are talking about businesses, employers going bust trying to fill from the pension scheme. So it's a huge issue."

Beyond pensions, there are other important payments. Scots take 10.9%, or £1.37bn, of the disability living allowance budget, while making up 8.6% of the UK population. Scotland's incapacity benefit bill sits at £564m, or 11.4% of the overall British expenditure. Employment and support allowance costs £381m, or 10.7% of the UK-wide spend.

However, the issue that has to come dominate the welfare debate, and, for some, to symbolise the divergent values of the Scottish political consensus and the UK Government, is the "bedroom tax". The reform reduces the housing benefit received by those living in social rented accommodation deemed to be under-occupied.

The SNP has pledged to abolish the reform in the first year of an independent Scotland, while Scottish Labour has called on the Scottish Government to set up a £50m fund to mitigate the impact of the change on tenants.

The question of what the welfare state should do and how it should be funded will continue to play a prominent role in the referendum debate. For some, it is about abstract facts and figures; for others, it is about their financial wellbeing; and for others still, it goes to the heart of what kind of country Scotland is and what kind of country it should be.

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