Tackling child poverty delivery plan 2022-2026 - annex 4: cumulative impact assessment

5. Conclusions

Our modelling demonstrates that Scottish Government policies are having significant impacts on child poverty. These impacts are concentrated on children in the priority groups, reflecting the preponderance of these groups among children in poverty. The impacts appear to be less proportional for children in working households, and the policy package reduces work incentives for some parents in poverty. Partial take-up of benefits is also an issue, while on the other hand a considerable proportion of expenditure reaches households which do not have children or are not in poverty. Nevertheless, in large part as a result of the policy package, relative child poverty is projected to fall to around 17% by 2023/24.

This result may be surprising given that several modelling publications have previously projected that the interim target will be missed. However, this report is not directly comparable to previous analyses, for several reasons. First, most of the modelling to date was conducted before a number of key policies were introduced, including recent changes to reserved taxes and benefits in addition to increases in the Scottish Child Payment, and before inflation forecasts were pushed up by the ongoing cost of living crisis. Second, our modelling incorporates a number of Scottish Government policies which are not usually included in microsimulation models but which nevertheless affect household incomes. While none of these policies will achieve the necessary reductions in child poverty in isolation, they contribute to the cumulative impact of the policy package.

Ultimately, all modelling results are estimates, relying on a range of methodological choices and assumptions. We have used the available data and tools to ensure our estimates are as robust as possible, but different models will naturally produce different results, all of which should be interpreted with caution. While our projections indicate that relative child poverty will fall to around 17% by 2023/24, the outcome is sensitive to factors which cannot be modelled with complete precision or predicted with complete certainty.

In any case, our projections also indicate that absolute child poverty will not fall as steeply, reaching a projected level of around 16% by 2023/24. This variance in outcomes mainly stems from differences in how the two measures of poverty modelled in this report respond to external factors, such as recent reserved decisions and expected changes in the wider economy, particularly inflation. These differential results underscore the importance of considering the full basket of measures, including those not modelled in this report.

External factors also represent a key source of uncertainty in our results. To project inflation, earnings growth, and other key variables into the future, our modelling relies on forecasts by the Office for Budget Responsibility (OBR). The latest set of OBR forecasts available at the time of writing were produced in October 2021. However, OBR are due to publish a new set of forecasts in March 2022, which could differ markedly from the October forecasts given the volatility currently affecting the economy. The latest FRS data were also due to be published in March, covering the first year of Covid-19, but these will no longer be published in full due to the impact of the pandemic on the data collection process.

Because these sources of uncertainty multiply as we project further into the future, we have not modelled child poverty in 2030/31, the year of the final targets. However, it is clear from this report that meeting the targets will require an unprecedented reduction in child poverty. According to our projections, relative child poverty will need to fall by additional 8 percentage points between 2025/26 and 2030/31, while absolute child poverty will need to fall by an additional 12 percentage points. Such a reduction is unlikely to occur without considerable changes to the drivers of poverty.