Background
In the wake of the COVID-19 pandemic, the UK government introduced changes to some benefit payments. Both the standard allowance in Universal Credit (UC) and the basic element in Working Tax Credit (WTC) were increased by £20 per week – £1,040 per annum, due to last for one year until March 2021. In March 2021, the UK government extended the UC benefits uplift for a further six months to the end of September 2021. A £500 one off ‘bonus’ payment – equivalent to £20 per week for six months – was also introduced to support the end of the temporary increase in Working Tax Credits. Throughout this blog, the term ‘UC uplift’ is used to refer to both the increase in both UC payments and Working Tax Credit payments.
Over half a million Scottish households are in receipt of either Universal Credit or legacy benefits, and so it is anticipated that the removal of these measures will have an impact on the overall poverty rate and child poverty rate.
This blog presents analysis of the impact of the UC uplift that has been undertaken using a model called UKMOD. Three scenarios are considered:
- No uplift – if there had been no uplift to Universal Credit or Working Tax Credit payments in 2021-22
- Current UC uplift – the current position, where UC and WTC uplifts are expected to be in place until the end of September 2021
- Full year uplift – if the uplifts are continued for the whole of 2021-22
All the analysis relates to the financial year 2021-22 (April 2021-March 2022). Some further information on the modelling approach can be found at the end of the blog.
How has the UC uplift affected poverty in Scotland?
The chart above shows that without the uplifts, both the overall poverty rate and the child poverty rate in Scotland would be around one percentage point higher in 2021-22. Withdrawing the uplift would move around 50,000 people, including 10,000 children, into relative poverty and would decrease spending on Universal Credit and Tax Credits in Scotland by nearly £230 million. The primary beneficiaries of the benefits uplift have been households with lone parents and households with young mothers. If the uplift is removed, one-fifth of these households will lose more than 5% of their income.
What if the uplift is extended?
The Scottish Government, along with other devolved nations and many other groups have called for the UC uplift to be extended. The SPICe analysis shows that if the uplift is extended until the end of March 2022, the child poverty rate would be expected to be reduced by a further one percentage point. There would also be an impact on overall poverty, but this is smaller than one percentage point and so is not within the range that is reported. (With this modelling approach, only changes of more than one percentage point are considered sufficiently reliable to be reported.)
Maintaining the uplift for a further six months would move a further estimated 10,000 children out of relative poverty. This would increase spending on Universal Credit and Tax Credits in Scotland by around £200 million. The primary beneficiaries of maintaining the benefits uplift are households with households with lone parents and households with young mothers. Around 10% of households with lone parents and 15% of households with young mothers would see their incomes rise by more than 5%.
Can the Scottish Child Payment (SCP) help mitigate the end of the uplift?
The Scottish Child Payment (SCP) was introduced in February 2021 and serves as one of the Scottish Government’s main policies for reducing child poverty. Qualifying households currently receive £10 per week for every child under age 6. Over 100,000 (roughly one fifth) of Scottish households that receive UC or equivalent legacy benefits are eligible for the SCP, so the SCP would be expected to mitigate the end of the uplift to some extent.
Modelling suggests that the SCP has decreased both the overall poverty rate and the child poverty rate by around one percentage point in Scotland in 2021-22. The SCP has lifted an estimated 10,000 children out of relative poverty and is estimated to cost around £70 million in 2021-22. The primary beneficiaries of the SCP are households with 3 or more children, lone parents and young mothers. Most significantly, around 25% of households with young mothers have seen their incomes rise by more than 5%.
What difference would doubling the Scottish Child Payment (SCP) make?
The Scottish Government has pledged to double the SCP to £20 per week per child. If this policy was implemented in 2021-22, the poverty rate and the child poverty rate would fall further and the impact would be similar to that achieved by extending the benefits uplift. The impact of these alternative policies will fall differently on households, depending on the number and ages of children in the household. For example, 20% of households with young mothers would see their income rise by more than 5% if SCP was doubled rather than the UC uplift being extended. However, 10% of households with young mothers would see their income fall by a similar amount under this scenario. Around 10% of households with lone parents would also stand to lose more than 5% of their income if SCP was doubled rather than UC being extended.
Doubling the SCP would cost around £70 million more in 2021-22 compared with the current costs of paying SCP at £10 per week. This is still around £130 million less than the cost of extending the benefits uplift until the end of the tax year. It is worth noting, however, that the cost of extending the SCP would fall to the Scottish Government, while the cost of extending UC and legacy benefit uplifts would fall to the UK government. See SPICe blog ‘Scottish Child Payment: where next?’ and SPICe briefing ‘Scottish Child Payment’ for some further discussion of future plans for the SCP.
Notes on modelling approach
Throughout this blog, the poverty rates referred to are relative poverty rates after housing costs. An individual is considered to be living in relative poverty if they are in a household whose equivalised income is less than 60% of the average income, as measured by median incomes. Equivalised income means that incomes are adjusted to reflect the composition of the household, to reflect the fact that, in order to achieve the same standard of living, a single person will need less income than a household with two adults and two children. For this analysis, a Scottish poverty threshold has been used i.e. the 60% threshold is based on Scottish incomes.
Reflecting the accuracy of the modelling approach, all results have been rounded to the nearest percentage point (for poverty rates), or nearest 10,000 individuals (for numbers of children / people).
Huw Gallocher, Economic Futures SPICe placement student
Economic Futures, a project funded by the Scottish Funding Council and hosted by The University of Strathclyde, aims to engage with undergraduate economics students, graduates and early career academics, across Scotland to provide an eco-system for applied economic analysis. The Economic Futures work placement programme provides 3rd and 4th year Scottish economics students with a range of applied economic analysis opportunities in academia, public policy, charities and the private sector.