Scottish Child Payment and the Labour Market - update 2026

Literature review - update

Since publication of the July 2024 report, only a limited amount of additional external evidence has become available on the relationship between SCP and labour market outcomes. This section reviews evidence published since the previous report that is directly or indirectly relevant to understanding the employment effects of SCP. It covers studies that explicitly assess labour supply impacts, research examining wider outcomes associated with SCP that could affect labour market participation, and evidence from related child payment policies where these findings provide useful context. The purpose is to assess whether the emerging evidence alters or reinforces the conclusions reached previously.

Direct evidence on SCP and labour supply

The most relevant new external research is an Institute for Fiscal Studies working paper^[2] examining whether SCP weakens work incentives. The paper models where the loss of SCP occurs for different illustrative family types as their earnings increase. It also uses Family Resources Survey data to compare changes in employment and working hours among families in Scotland and England following the introduction and expansion of the payment.

The modelling finds that lone parents and sole earners in couples earning the National Minimum Wage would generally need to work more than full-time hours before reaching the point at which Universal Credit and SCP entitlement ends. The authors conclude that the cliff edge is unlikely to constrain the labour supply of most lone parents and sole earners.

The cliff edge is potentially more relevant to some second earners. In an illustrative couple where the main earner works full-time, a second earner in a family not receiving housing support may reach the end of Universal Credit entitlement at relatively low working hours. Where the family receives housing support, the higher Universal Credit award typically moves the cliff edge above full-time earnings, even if both adults are working.

This empirical analysis finds no evidence that SCP reduced employment or labour market participation. For working hours, the central estimate indicates a reduction of around one hour worked per week per household in Scotland relative to England following the expansion of the payment. This result is only marginally statistically significant and is not statistically significant when the analysis is restricted to smaller groups, including households with second earners. The authors conclude that the analysis does not provide consistent evidence of a reduction in labour supply that can be attributed to SCP.

Other new evidence on SCP

Separate research from the Universities of York, Glasgow and the London School of Economics examines the effect of SCP on child and family wellbeing.^[3] It reports that the payment provides families with greater financial security, helps them meet essential household and child-related costs and reduces financial stress.

These findings suggest possible mechanisms through which additional income could support labour market participation, including by reducing financial pressure and helping families meet some of the costs associated with work. However, the research does not directly estimate the effect of SCP on employment or working hours.

Wider evidence on benefits and labour supply

One recent study^[4] examines the effect of the two-child limit on maternal labour supply in England and Wales. It estimates that restricting support for third and subsequent children produced a small increase in economic activity among affected mothers, mainly through increased full-time employment.

The study provides some wider evidence that changes in child-related benefit entitlement can affect labour supply. However, it examines a materially different policy, population and period and does not provide direct evidence on the impact of SCP.

Assessment

The findings of the IFS working paper are consistent with the conclusions of the July 2024 publication. It not only finds little evidence of a wider labour supply effect, but also suggests that the SCP eligibility cliff edge is unlikely to affect the labour supply decisions of most lone parents and sole earners because entitlement typically extends beyond full-time work at minimum wage earnings.

The wider evidence suggests that benefit income could affect labour supply in either direction. The two-child limit study indicates that reducing child-related support can increase labour supply, although its findings are not directly transferable to SCP. The York, Glasgow and LSE research identifies possible employment-supporting effects from greater financial security, but does not directly measure them.

Overall, the new literature is consistent with the assessment that SCP has not led to detectable reductions in employment or working hours at population level.