Child poverty modelling: update

1. Summary

This report estimates the impacts of a package of Scottish Government policies on child poverty, updating the modelling that was originally undertaken for the second Tackling Child Poverty Delivery Plan. The report also examines a number of UK Government welfare policies from a child poverty perspective and estimates the impacts of a selection of hypothetical reforms.

The report focuses on two of the four statutory measures of child poverty, namely relative and absolute poverty after housing costs. Relative poverty is defined as having household income below 60% of the UK median. It therefore compares the incomes of households at the lower end of the income distribution with those in the middle. Absolute poverty is defined as having household income below 60% of the 2010-11 UK median, adjusted for inflation. It therefore tracks the extent to which low incomes are keeping up with prices.

The report also contains analysis on deep (or ‘severe’) poverty, defined as having household income below 50% of the UK median; and low income, defined as having household income below 70% of the UK median. For all measures, household income is defined by taking total household income from all sources net of tax, subtracting housing costs, and adjusting for household composition (‘equivalisation’).

The report finds that:

• Scottish Government policies are estimated to keep 70,000 children out of relative poverty in 2025-26, with the relative child poverty rate seven percentage points lower than it would be without these policies in place. This impact grows over time to reach 10 percentage points (100,000 children) by 2028-29.
• In terms of absolute child poverty, Scottish Government policies are estimated to keep 60,000 children out of poverty in 2025-26 on this measure, with the absolute child poverty rate six percentage points lower than it would be without these policies in place. This impact grows over time to reach 11 percentage points (110,000 children) from 2026-27 onwards.
• The Scottish Child Payment alone is estimated to keep 40,000 children out of relative poverty in 2025-26, with the relative child poverty rate four percentage points lower than it would be without the policy in place. Mitigating the two-child limit is estimated to keep 20,000 children out of relative poverty in 2026-27, representing an impact of two percentage points on the relative child poverty rate.
• The estimated impacts of the policy package on deep child poverty are equivalent to, or greater than, the impacts on relative child poverty. The deep child poverty rate is projected to be 7 percentage points lower in 2025-26 than it would be without the policy package in place, representing some 70,000 children who would otherwise be in deep poverty. Since deep poverty is a more stringent measure of poverty, the impacts are proportionately greater. An estimated 41% of children who would be in deep poverty without the policy package in place will be kept out of deep poverty in 2025-26, compared to 26% on the relative measure and 14% on the less stringent low-income measure.
• On average, households with children in the poorest 10% of households benefit from the policy package by an estimated £2,600 per year in 2025-26, representing over 20% of their income. This value is projected to grow to an average of £3,700, or nearly 30% of income, by 2029-30.
• By the end of 2024-25, the two-child limit will have withheld an estimated cumulative total of £377 million from Scottish households since it was introduced (£424 million in 2024-25 prices). Meanwhile, the benefit cap will have withheld £57 million (£71 million in 2024-25 prices) with the vast majority of this income withheld from households with children. Between 2011-12 and 2023-24, freezes and caps to Local Housing Allowances reduced the income of households in Scotland by an estimated cumulative total of £66 million (£81 million in 2024-25 prices), of which £26 million (£32 million in 2024-25 prices) was withheld from households with children.
• In 2025-26, the relative child poverty rate would be 2 percentage points lower if the UK Government abolished the two-child limit, representing an additional 20,000 children who would not be in poverty. The impact of replicating the Scottish Child Payment in Universal Credit would likewise be 2 percentage points (20,000 children), while the impact of introducing an Essentials Guarantee would be 4 percentage points (40,000 children). The cumulative impact of these changes, plus removing the benefit cap, would be to lower the child poverty rate by an estimated 10 percentage points relative to the baseline, representing an additional 100,000 children who would not be in poverty.

All modelling is subject to a degree of uncertainty, relying on a number of assumptions and simplifications. The results presented in this report, particularly projections of outturn poverty rates, should therefore be treated with caution.