Scottish Child Payment and the Labour Market - update 2026

Economic theory

Economic theory suggests that SCP could affect labour market decisions in different directions. By increasing household income, the payment could reduce the need for some clients to enter employment or increase their working hours. Alternatively, it could support labour market participation by reducing financial pressure and helping families meet costs associated with employment, including childcare and transport. The response will depend on individual and household circumstances, including existing earnings, family size, caring responsibilities and the availability of suitable employment.

Eligibility for SCP is lost when entitlement to Universal Credit or another qualifying benefit ends. This could mean a relatively small increase in earnings could result in the loss of Universal Credit and with it the loss of SCP. The potential loss increases with the number of eligible children and could discourage some clients close to the eligibility boundary from increasing their earnings. However, clients below that boundary continue to receive SCP in full as their earnings rise, so it does not add to their marginal effective tax rate until eligibility ends. Economic theory alone cannot therefore determine the scale or overall direction of the effect on labour supply, which requires empirical evidence on the distribution and pattern of earnings, and how clients respond to incentives in practice.