A loophole could allow the UK Government to claw back higher welfare payments authorised by Scottish ministers, according to a new report.

Higher benefits could be offset by reductions in the new ‘Universal Credit’ system, the Scotland Institute warned.

Scottish ministers will get the power to create new benefits and 'top up' existing ones.

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But the Institute said it was still unclear how the changes would affect the new scheme being rolled out across Scotland.

UC integrates six payments including Jobseeker’s Allowance, Child Tax Credit, Working Tax Credit and Housing Benefit.

Ministers say it will ensure claimants who work get to keep more of the money they make, by reacting more quickly and fairly to changing circumstances.

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But the report warns: “If benefits are created outside the Universal Credit system then there is no guarantee that the (UK Government) will not reduce Universal Credit pro-rata.”

The report also reiterates warnings that those who currently receive in-work tax credits and move onto UC will find themselves between £1,600-3,000 year worse off.

A Department for Work and Pensions spokesman said: “The reality is that Universal Credit, which is now available to all single jobseekers across Scotland, is revolutionising welfare. It is simplifying the system, with claimants moving into work faster than under the old system – things which this report simply fails to recognise.

“We are working closely with Holyrood on the transfer of a raft of new powers on tax and welfare that delivers for the people of Scotland. Through the Scotland Act, the Scottish Parliament will get new powers to determine how and when claimants are paid.”

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A Scottish Government spokeswoman said: “It is clear that there are serious issues with Universal Credit that the UK Government urgently needs to address. The Fiscal Framework is clear that the principle of no detriment should apply to any additional funding that Scottish Government invest in the welfare system.”