International analysis of child poverty – ukmod/euromod modelling

Summary

The Scottish Government is committed to reducing the number of children living in relative poverty to less than 10% by 2030. This study provides evidence designed to support that target, by drawing insight from international experience.

Four comparator countries were considered for analysis, selected either because they have maintained persistently low rates of child poverty (Finland and Denmark), or because they have seen child poverty rates fall in the decade to 2024 (Croatia and Slovenia). This analysis seeks to explain what has driven differences in child poverty rates between Scotland and these comparator countries – and, for the countries that have seen reductions, what has driven divergences with Scotland over time. The method used in this report allows us to say how much of the difference is due each of three factors: demography, labour market, and the tax-and benefit system.

Key points to take from the analysis:

• Reflecting the wider literature, the research finds that the relative success of countries with some of the lowest child poverty rates, namely Denmark and Finland, is driven mostly by differences in the income distributions before taxes and benefits have been applied (“original incomes”). This reflects the importance of the labour market for reducing child poverty, though demographic factors also play a substantial role. Higher average working hours among parents in comparator countries appears to be a key factor – especially among lone parents, for whom the labour market factor was found to be particularly, with respect to the other two factors (demography and the tax-benefit system) important in explaining differences in child poverty rates between countries.
• The tax-benefit system actually reduces child poverty more in Scotland than it does in these exemplar nations. This finding does not necessarily imply that the tax-benefit system in Scotland is more generous for households on low incomes, as a more unequal distribution of original income will lead to a larger redistributive effect, all else equal. However, it does indicate that international precedents for achieving low rates of child poverty go beyond the tax-benefit system.
• To take one example, in 2024, the relative child poverty rate before housing costs in Denmark is found to be 6.3%, compared to a rate of 14.9% in Scotland (using a Scottish-only poverty line). This implies a difference of 8.6 percentage points. However, the decomposition analysis indicates that differences in original income between the two countries accounted for a 14.3 percentage-point difference in child poverty rates. Differences in transfer payments therefore reduced the difference in child poverty rates by 5.7 percentage points. Over half of the 14.3 percentage-point difference in child poverty rates based on original incomes was due differences in the labour market (7.7 percentage points), with the remainder accounted for by differences in demography and its interactions with the labour market.
• While the tax-benefit system in Scotland reduces child poverty more than in exemplar nations, the increases in child poverty observed in Scotland since the early 2010’s – particularly in comparison to Slovenia and Croatia, which have by contrast achieved notable reductions – have resulted from a weakening of the protective effect of the tax-benefit system. This reflects the cuts to social security that were enacted at a UK level over this time period, the impact of which was apparently sufficient to counteract an improvement in the distribution of original incomes.

This study is complemented by a detailed evidence review on each of the study countries looking at their economic, social and political landscape alongside their child poverty policy choices.