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Scottish Child Payment - estimating the effect on child poverty

This paper sets out our estimate of the effect of Scottish Child Payment on child poverty, and the methodology we have used to calculate this.

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Overview

Scottish Child Payment was launched by the Scottish Government in February 2021 to reduce the level of child poverty in Scotland. It is paid at £10 per week per child to low-income families with children under the age of 6. We will increase the value of Scottish Child Payment to £25 per week and extend it to eligible children aged between 6 and 15 by the end of 2022. As of 31 December 2021, official statistics estimate that 104,000 children were in receipt of Scottish Child Payment.

In this paper we set out our estimate of the effect of Scottish Child Payment on relative child poverty in 2023-24 and our corresponding methodology. We use 2023-24 as it will be the first full year Scottish Child Payment is paid to children aged between 6 and 15 and this is the year of our interim child poverty targets.

Methodology

We use a tax-benefit microsimulation model called “UKMOD” to estimate the effect of Scottish Child Payment on child poverty. UKMOD is an open-access model maintained, developed and managed by the Centre for Microsimulation and Policy Analysis at the Institute for Social and Economic Research (ISER), University of Essex[1]. UKMOD simulates tax and benefit rules on household survey data that is representative of the population. This allows a user to model a policy change and estimate the effect on outcomes of interest.

The latest version of UKMOD (3.0) has been used for this analysis, which was published in February 2022. This includes policy changes announced in the UK and Scottish Government Budgets by the end of 2021. The underlying household survey data used is the DWP Family Resources Survey (FRS). We use the latest three years of FRS data (2017-18, 2018-19 and 2019-20) pooled together to increase the sample size and improve the robustness of our estimates. To forecast future years, UKMOD incorporates upcoming changes to tax and benefit policies and forecasts monetary values in the FRS, largely based on the Office for Budget Responsibility’s (OBR) forecasts, published in October 2021 alongside the UK Government Autumn Budget.

We incorporate Scottish-specific policies into UKMOD 3.0 that are not included by default. This includes Free School Meals, School Clothing Grant, Best Start Foods, the Scottish Council Tax Reduction scheme, bedroom tax mitigation through Discretionary Housing Payments (DHPs), and benefit cap mitigation through DHPs (up to the level of maximum housing benefit). We also include the decision to uprate by 6% Best Start Grant, Carer’s Allowance Supplement and Child Winter Heating Assistance from April 2022. 

We use UKMOD to estimate the effect of Scottish Child Payment on the relative child poverty rate, after housing costs. Relative child poverty refers to the proportion of children living in households with equivalised incomes below 60% of median UK income. It is a measure of whether incomes of the lowest income households are keeping pace with incomes in the economy as a whole. The Scottish Government’s interim child poverty target is that less than 18% of children are living in relative child poverty in 2023-24 and the final target is that less than 10% of children are living in relative child poverty in 2030-31.

To estimate the effect of Scottish Child Payment on child poverty in 2023-24, we model two scenarios:

A. Scottish Child Payment is paid at a weekly rate of £25 per child

B. Scottish Child Payment does not exist

We then take the difference in the estimated child poverty rate and number of children living in poverty between each scenario, to estimate the effect of Scottish Child Payment on child poverty. This approach implicitly assumes that Scottish Child Payment is ordered last in the set of policies modelled, including for example the policies set out in paragraph 5. This judgement is logical given Scottish Child Payment is one of the newest benefits launched by the Scottish Government and eligibility is dependent on receipt of reserved benefits. This means under both scenarios the impact on child poverty of other policies is included and the only difference between the two is the exclusion of Scottish Child Payment under scenario B.

In scenario A, we assume take-up rates of 83% for households with at least one child under the age of 6, and 77% for households with children aged between 6 and 15. Take-up is a measure of the extent to which people who are eligible for a benefit actually receive it. The Scottish Fiscal Commission assumed in their December 2021 forecast that in response to Scottish Child Payment increasing from £10 to £20 from April 2022, more people might take-up Scottish Child Payment and increased their assumption for the take-up rates by 2 percentage points accordingly. We apply this assumption pro-rata to a further increase in Scottish Child Payment to £25, meaning an additional 1 percentage point is added to our take-up assumptions. However, as the value of Scottish Child Payment has not changed before, we don’t have historic data to assess the responsiveness of take-up of Scottish Child Payment to changes in the payment value, so this is a source of uncertainty.  

Results

Our analysis suggests that Scottish Child Payment could reduce the relative child poverty rate (after housing costs) by an estimated 5 percentage points in 2023-24. This represents lifting 50,000 children out of relative poverty. Further analysis on the level of the relative child poverty rate in 2023-24 can be found in the Scottish Government’s Child Poverty Cumulative Impact Assessment report.

Limitations

The main limitation of our estimate of the effect of Scottish Child Payment on child poverty is that it does not incorporate behavioural responses (other than a change in take-up, which we have attempted to control for). This is because UKMOD is a static microsimulation model: both the population and the behaviours of the population are kept fixed when analysing the effects of policies. For example, it is possible that a recipient of Scottish Child Payment might reduce their labour market activity in response to receiving the  additional income (Scottish Child Payment will be worth £1,300 per child per year in 2023-24 – this money is exempt from income tax and is not treated as income for Universal Credit). On the other hand, Scottish Child Payment may help a parent afford training required to progress into a higher paid job. In each of these examples, the change in net income caused by Scottish Child Payment would be different to £25 per week per child. This in turn affects the impact of Scottish Child Payment on child poverty. As such, the ‘true’ effect of Scottish Child Payment on child poverty could differ to our estimate. 

This analysis is a forecast which in turn is dependent on many other forecasts used in UKMOD. If outturn growth in variables such as (but not limited to) inflation, earnings or interest rates differ to the forecast values used in UKMOD, this will affect our estimate of the impact of Scottish Child Payment on child poverty.

This analysis was carried out prior to the UK Government’s Spring Statement, which the Chancellor delivered on 23 March 2022. As such, it only accounts for reserved policy changes announced up to the UK Government’s Autumn Budget in 2021. 

Related analysis

We have published an assessment of the cumulative impact of Scottish Government policies, including Scottish Child Payment, on child poverty in 2023-24 and 2025-26. The analysis contained in this paper is consistent with the modelling approach used for the cumulative impact assessment: our Scenario A is identical to the 2023-24 ‘Policy’ scenario used in that report.

Communities Analysis Division

Social Security Policy Analysis and Modelling
March 2022

 

[1] M. Richiardi, D. Collado, D. Popova; 2021; UKMOD – A new tax-benefit model for the four nations of the UK; International Journal of Microsimulation; 14(1); 92-101. The results in this paper and their interpretation are the Scottish Government’s sole responsibility.

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