Scottish Child Payment: position paper - June 2019

Development of The Scottish Child Payment

As set out in the Analysis of Options for the Income Supplement report, the first stage in the policy development process^[2] was to establish a set of key objectives to help guide the development of the Scottish Child Payment, determine potential options and support future evaluation. The objectives set for the Scottish Child Payment are to:

• Achieve a minimum reduction in child poverty (relative, after housing costs) of 3 percentage points when the income supplement is fully rolled out. This provides a tangible, identifiable outcome which can be measured once the Scottish Child Payment is rolled out, and ensures that social security provides a substantial part of our reduction in poverty whilst being clear it cannot be the only solution.

• Reduce the depth of poverty and provide support to those who need it most. This ensures we support people across the lower deciles of the income distribution, rather than simply getting those closest to the poverty line over the threshold.

• Help to support a sustainable and lasting reduction in poverty for families with children. This ensures outcomes beyond redistribution, supporting people to access wider services and support should they want and require it – for example, fast-tracked access to a financial health check or employment support.

The second stage, guided by these objectives, was to develop a number of policy options and test these with stakeholders. Meetings have been held with stakeholders throughout the Scottish Child Payment's development, including two Scottish Government hosted workshops in February 2019 with representatives from academia, local authorities, anti-poverty organisations and think tanks.

The following options were considered as part of our policy development process:

1. Child Benefit (CB) based entitlement

2. Universal Credit (UC) based entitlement

3. Universal Credit (UC) based entitlement, with higher payments for targeted groups (lone parents, families with young children, larger families, families where a child or adult is disabled and young mothers)

4. Entitlement through a means-test unrelated to any existing benefit

5. Council Tax Reduction (CTR) based entitlement

The third stage was to undertake detailed policy modelling, to analyse the potential policy costs and impact on poverty, and complement it with a thorough consideration of how options compare against key criteria that would contribute to the success of the policy – factors such as simplicity, consistency, take-up and impact on employment and earnings. We also considered how automated payments would compare to application-based ones for each of the options under consideration.

Payment amount

The five policy options set out above were configured so as to meet our first objective, which is to reduce relative child poverty by 3 percentage points. Because the Scottish Child Payment is a policy that will be looking to make a lasting difference to children's lives, we looked at how the options would compare in steady-state, once Universal Credit (UC) is fully rolled out which is currently planned for 2023/24.

The modelling^[3] suggests that to meet this first objective:

• Options 1, 2 and 4 would require a weekly payment of £10 per child
• Option 3 could reach the objective at £5 per child for all eligible children, plus an additional payment of £5 for lone parents, families with young children, larger families, families where a child or adult is disabled, and young mothers.
• Option 5 – CTR based entitlement – would require a much higher payment, in the region of £45 a week per child. This is because this policy would see the income supplement paid to a smaller group of children in poverty and miss a much larger group than any other option.

Consideration of evidence

On policy coherence, it was clear that options 1 and 5 could be ruled out. The option to top up Child Benefit would not achieve the targeting that we desired, being the most expensive policy option at £420-£460m per annum. It was also found to be the least targeted option with circa 75% of payments being made to children not in relative poverty.

On the other hand, the CTR option would miss a large number of children in poverty and, at £45 per week per child, potentially distort work incentives for some family groups. It was clear that this level of payment was not a sustainable way to help families get out of poverty and, at £290m-£330m per annum, it was also not the best use of resources.

The analysis illustrates that there is a trade-off between coverage and targeting. By introducing a more targeted income supplement, the risk that some children in poverty may not be included increases and the coverage of the policy falls.

Conversely, the more universal the Scottish Child Payment, the higher the likelihood of paying it to families whose incomes are substantially above the poverty line. We therefore have to make careful decisions that balance the two objectives against each other.

Setting aside options 1 and 5, which are at the two extremes of the coverage and targeting objectives, the remaining three options – Options 2, 3 and 4 - strike the balance between them. This meant that a UC based entitlement (either simple or targeted) or creating a benefit with its own means-test needed to be examined further in terms of their delivery.

On delivery, when exploring options for the Scottish Child Payment, a key driver was the timeliness of each option, recognising the urgency with which the Scottish Child Payment needed to be rolled out. A further key driver was to utilise the capabilities and learning that had already been developed by the Social Security Programme.

We considered the potential to build our own means-tested benefit – Option 4. However, this option would add significant complexity in terms of continuous assessment of incomes. It would have a 2–3 year development window and involve concurrent development of technology and operations, alongside the already complex introduction of the devolved benefits. We therefore ruled out Option 4 on the basis of these delivery risks.

This meant that entitlements based on UC - Options 2 and 3 - were the only remaining options. In order to make decisions between these two, we first considered whether we would deliver them on an automated or application basis.

The modelling shows that, in terms of coverage, automated payments have an advantage. They are also much simpler from the perspective of the families who would be eligible for Scottish Child Payment, as they would not need to fill in an additional application form. It would also help with issues of non-take up. We recognise these advantages of automated payments.

However, given the challenges with UC, which is not due to be fully rolled out until 2023 at the earliest, an automated UC-based delivery model was not considered to be a robust delivery route, as we could not guarantee that all eligible households would be transferred onto UC within the timescales of the TCPDP (2022). Having to build interfaces with the suite of legacy benefits in mitigation of this risk was deemed to be too technically complex, time-consuming and not cost-effective, given that UC is designed to replace those systems.

In light of the considerations above, we have settled on the approach of adopting an application based process delivered by our own social security agency, Social Security Scotland. A multi-channel application process is tried and tested, and based on user feedback, and the agency has experience of processing applications of this nature. Taking this approach is therefore an efficient and timely option, which ensures that clients are treated with dignity and respect.

Direct contact with clients would also offer more scope to explore routes through which we could meet the third objective for this policy as we could have better opportunities to direct families to other support and services that could help achieve a sustainable route out of poverty.

We were also mindful of the need to reduce technical complexity and risk, and deliver within the required timescales. We therefore looked at how we could build on existing infrastructure developed for the Scottish low income benefits and specifically for Best Start Grant. Option 3, as a more technically complex benefit, with accompanying delivery risks, was therefore ruled out.

This led to a focus on Option 2 as it provides an opportunity to build on the existing platform, using the same eligibility rules, data feeds, and regular payment functionality.