Ending child poverty: the challenge ahead

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The latest picture on child poverty

The Scottish Government’s latest poverty statistics show that – on the most commonly used measure of poverty – child poverty has crept up, with an estimated 240,000 children now living in poverty in Scotland.  This represents just under a quarter of all children. It is based on the number of children living in households where income after housing costs is below 60% of the UK median – known as “relative poverty”.

SPICe_2019_Child Poverty_Blog - Timeseries

The Scottish Government analysis shows that the risk of a child living in poverty is higher for certain groups, including:

  • children in single parent families
  • children with mothers aged under 25
  • children living in rented accommodation (either council, housing association or privately rented).

The Scottish Government is committed to eradicating child poverty. The Child Poverty (Scotland) Act 2017 includes four targets for child poverty in Scotland in 2030.  These targets state that relative child poverty should be reduced to 18% by 2023-24 and to 10% by 2030-31.  At 24% in 2017-18, relative child poverty currently sits well above the target.

The outlook for child poverty

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.

These findings are backed up by research published by SPICe.  Working in collaboration with the University of Essex Institute for Economic and Social Research (ISER), our research considers how a range of policy interventions might impact on child poverty in Scotland over the period to 2023-24.  The analysis uses EUROMOD, a microsimulation model developed and maintained by ISER which looks at the effect of tax and benefit policies on household incomes.

Considering policy options

The analysis 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.  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 found to be 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%.

SPICe_2019_Child Poverty_Blog - Scenarios

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.

Who benefits most?

The impact on different family types also varies between different policy measures.

SPICe_2019_Child Poverty_Blog - Family type

  • Reducing the starter rate of income tax only benefits families where at least one adult is working; poorer families benefit less as they are less likely to be paying income tax and any gains are offset by the impact of reductions in means-tested benefits.
  • All households with children gain from an increase in child benefit, but as child benefit is not means-tested, the impact of this policy is not directed at poorer families; for lone parent families, the gains are not enough to offset other reductions over the period to 2023-24.
  • The modelled changes to Universal Credit are specifically targeted at poorer households with children, so have a larger impact for those households at the bottom of the income distribution and the biggest impact on child poverty; the largest benefits are for lone parents and families with three or more children.

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.

A new income supplement?

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.

Nicola Hudson, Senior Analyst, Financial Scrutiny Unit