International analysis of child poverty – ukmod/euromod modelling

1. Background and Motivation

Ending child poverty is one of the Scottish Government’s primary priorities.^[1] Specifically, reaching the child poverty targets as set out through the Child Poverty (Scotland) Act 2017.

The second tackling child poverty delivery plan – Best Start, Bright Futures – was published in March 2022 and sets out wide ranging 5-year policy action to support progress towards the child poverty targets.^[2] The third tackling child poverty delivery plan is planned for March 2026, which will cover the period 2026-30 with the objective of setting out a credible path to achieving the 2030-31 child poverty targets. The present study aims to support and influence the development of this third plan.

The most recent single year estimates indicate that relative child poverty in 2023/24 was the lowest observed since the Child Poverty Act was introduced in 2017, and for absolute poverty was the lowest since estimates were first reported in 1994/95.^[3] Nevertheless, recent statistics show that child poverty rates in Scotland have remained stubbornly stable during the past 10 years despite a significant policy reform effort. While the Scottish Government anticipates that child poverty levels will reduce as a result of recent policy reforms – particularly the introduction of the Scottish Child Payment from February 2021 – it is clear that meeting the 2030 targets will require a significant shift in progress across the three drivers of poverty (employment income; costs of living; social security income and in-kind benefits).^[4]

Over recent years, the Scottish Government has shed new light on the barriers and challenges families on low incomes face.^[5] It has also helped to summarise the existing knowledge-base by reviewing international evidence concerning the types of interventions that appear to help tackle child poverty.

The Scottish Government is now seeking to delve deeper into the international evidence in support of policies that alleviate child poverty. This effort is supported by recent literature that compares child poverty rates and policy approaches in mid- to high-income countries. UNICEF’s Innocenti report on Child Poverty in the Midst of Wealth (2023), for example, highlights that:

• Child poverty reduced in countries that were neither the wealthiest nor those that experienced the strongest economic growth during the last decade. Conversely, the greatest leaps backward occurred in some of the richest members of the OECD and the EU. In this context, the UK was the worst performing country from a proportional perspective, with child poverty rates identified as increasing between 2012/14 and 2019/21 to just under a fifth.
• The distribution of original (gross private/market) income, not only the tax-and-benefit system, is key to achieving low child poverty rates. For example, the report highlights that the UK would have had the highest level of child poverty of the sample considered by the study, but this was offset appreciably by cash transfers.
• Specific tools proven to drive child poverty reduction include: increases in minimum wage (to tackle in-work poverty), effective family-friendly labour market policies, increasing cash benefits for children and families and investment in services that touch on children’s lives such as education, health, and nutrition.

In this context, the purpose of this study is to investigate what drives poverty differences between Scotland and a selection of EU countries. The comparator countries were selected for analysis because they either have persistently low child poverty rates or have seen child poverty fall appreciably over short periods of time.

This study is related to a companion study^[6] which is conducting a qualitative review of the international evidence concerning policies, institutions, and approaches utilised to reduce child poverty. It is expected that the findings from both studies will feed into the development of the third tackling child poverty delivery plan.

The specific aim of this study is to improve the evidence base concerning drivers that underly differences between Scottish child poverty rates and those observed in comparator countries, focussing especially on the following three factors:

• Demographics
• Labour markets
• Tax-benefit systems

The remainder of this report is organised as follows. Section 2 outlines the data and methodology adopted for analysis. Background statistics to our analysis are reported in Section 3. Results from a decomposition analysis of child poverty are reported in Section 4 and associated discussion including policy implications is provided in Section 5. The appendix includes further discussion of the methodology (Appendix A) and discussion of the counterfactual proxies for demographics and the labour market upon which our analysis of child poverty rates is based (Appendix B).