What could change rising child poverty rates in Scotland?

Researchers at the Scottish Parliament Information Centre (SPICe) worked alongside ISER Senior Research Officer, Dr Paola De Agostini, to test a range of policy interventions to reduce child poverty in Scotland over the period to 2023-24.

The analysis, published in a new SPICe research briefing Child Poverty in Scotland: forecasting the impact of policy options uses ISER’s tax-benefit microsimulation model, EUROMOD to look at the effect of tax and benefit policies on household incomes.

Previous research has shown that, if no action is taken, child poverty will continue to rise due to the effect of measures such as the freeze in certain benefit payments and the introduction of the two child limit, combined with forecast economic performance (Reed and Stark and Resolution Foundation). Research has also highlighted the scale of measures that might be required in order to have an impact on child poverty, with IPPR Scotland estimating the cost of meeting the relative child poverty target for 2030-31 at £3.8 billion per year.

Relative poverty chart

New research by ISER and SPICe considers how an illustrative sum of £0.8 billion could be used to fund changes to the tax or benefit system and assesses the potential impact on child poverty in Scotland compared with the 2023-24 interim target of 18%. Three policy scenarios were selected:

  • Reducing the starter rate of income tax from 19% to 0%
  • Increasing child benefit by £18.45 per week per child
  • Changing the child-related elements of Universal Credit: removing the two child limit, increasing the child element by 80% to £417 per month, re-introducing a family element of £545 per year.

These are purely illustrative in nature and not intended as policy recommendations.

On the basis of current policy plans and economic forecasts, our analysis shows that child poverty would be expected to rise from 23% in 2016-17 to 27% in 2023-24 if no action is taken.

By comparison, reducing the starter rate of income tax to zero could have the undesirable effect of further increasing relative child poverty over the period to 2023-24.

Alternatively, increasing child benefit by £18.45 per week would be expected to reduce relative child poverty to 24%, but is not as effective as spending the same amount of money on targeted changes to universal credit – the measures considered would be expected to reduce relative child poverty to 22%.

A – 28% Reducing the starter rate of income tax from 19% to 0%

B – 24% Increasing child benefit by £18.45 per week per child

C – 22% Changing the child-related elements of Universal Credit

With an investment of £0.8 billion - and everything else being equal - none of the policy measures considered would be expected to reduce relative child poverty to the target level of 18% for 2023-24. A higher level of investment might achieve a bigger impact, but complicated interactions in the tax-benefit system means it is not guaranteed that (for example) doubling spending would double the number of children taken out of poverty .

This analysis looks at a small number of policy measures in isolation. In the real world, a number of interventions might be introduced and run concurrently, including measures that do not involve the tax or benefit system. For example, the Scottish Government’s Delivery Plan includes measures such as extended childcare and greater access to affordable credit. Furthermore, other external factors will have an impact on child poverty, such as changes in the level of economic activity, changes in demographic composition or changes in wage distribution and employment rates.

The analysis highlights how different policy choices could have very different implications for child poverty. It also highlights that even quite significant changes to individual benefits within the social security system are unlikely (in isolation) to reduce child poverty to the target levels for 2023-24.

This research is intended to provide further evidence to inform the debate around child poverty as the Scottish Government implements its Child Poverty Delivery Plan, potentially through use of its taxation and social security powers. The Scottish Government has committed to introducing an income supplement for low income families, saying that this proposed benefit: “…promises to be a powerful tool in tackling child poverty in the future and we want to ensure that scarce resources are used efficiently and effectively to get money to those who need it most, minimising bureaucracy and maximising incomes.”

Responding to the latest poverty statistics, Douglas Hamilton, Chair of the Poverty and Inequality Commission said: “The Scottish Government must prioritise the development of its income supplement for low income families.”

The Scottish Government has committed to setting out options for the new income supplement prior to the Parliament’s summer recess.

Read the SPICe blog on the Report here