Tackling child poverty delivery plan: forecasting child poverty in Scotland

Chapter 4. Conclusions

This project has produced forecasts for the four poverty measures contained in the Child Poverty (Scotland) Act, for a fifteen-year period starting in 2016/17 (the year following the most recent year of FRS data currently available) and 2030/31. The headline results from the analysis are striking. Relative AHC child poverty in Scotland (poverty measure 1) is forecast to rise from 26.5 per cent in 2015/16 to 34.5 per cent by 2020/21, a rise of 9 percentage points. A rise of this magnitude in such a short space of time would be without historical precedent since 1994/95 (the first year for which data from the Family Resources Survey are available). For the most part, the forecast increase in poverty is driven by the substantial cuts to social security for families with children legislated for in the previous UK Government’s July 2015 Budget – in particular the four-year freeze on social security uprating and the two-child limit for Housing Benefit, tax credit and Universal Credit claims. In the 2020s, relative child poverty is forecast to continue to increase, albeit at a slower rate, reaching around 38 per cent by 2027/28.

Absolute child poverty (measure 2) also rises sharply in the early years of the forecast, from just over 25 per cent in 2016/17 to just under 33 percent in 2021/22 before falling slightly over the rest of the 2020s. Combined material deprivation and relative income poverty (measure 3) and persistent income poverty (measure 4) also rise in the early years of the forecast, but to a more limited extent – from 14 per cent in 2016/17 to 16 per cent in 2019/20 for measure 3, and from just under 13 per cent in 2015/16 to 15.5 per cent in 2026/27 for measure 4.

Whereas the policies enacted by the UK government after 2017/18 – including the remaining years of the working age social security uprating freeze and the roll-out of Universal Credit – are forecast to increase child poverty significantly under all four poverty measures (but especially measures 1 and 2), the reforms to tax and social security introduced by the Scottish Government do not have a statistically significant impact on child poverty.

Our analysis of the robustness of the headline results in this report suggests that varying most of the parameters for the analysis – wages, overall employment rates, the speed of roll-out of Universal Credit and the use of OBR or SFC forecast variables – makes only a minor difference to the results. Varying the population growth assumptions makes a somewhat bigger difference to the results but does not alter the key finding of a substantial increase in relative and absolute child poverty between 2015/16 and 2020/21.

The fact that the Scottish Government’s planned increase in Carers’ Allowance and the introduction of the Best Start Grant do not have a significant impact on poverty rates does not mean, in any sense, that the reforms are ill-advised. On the contrary, there are good policy rationales for both reforms. Rather, the conclusion should be that the impact of a policy on a particular child poverty measure, or measures, is only one aspect of policy evaluation, and in many cases it may not be the most important aspect. Other measures – such as distributional impacts on eligible recipients of a particular benefit – may be more appropriate. This is particularly important for a benefit such as Carers’ Allowance, where the number of recipients as a proportion of households with children in Scotland is very small (around 3 per cent).

Looking at the changes to Scottish income tax, much of the rationale for these is to provide badly-needed additional funding for public services in the face of real-terms cuts to the UK Government’s budget allocation for Scotland. The changes to rates have been made in such a way as to provide a small reduction in income tax payments for taxpayers on low-to-middle incomes while raising more from those earning over £26,000 per year. However, the policy was not designed as a means of reducing child poverty per se. One limitation of the child poverty measures featured in this report is that they do not take account of benefits-in-kind to families from improved funding for public services.

Finally, the results of breaking down our child poverty projections to look at subsamples of the population show particularly large forecast increases in child poverty for lone parents, families with three or more children and families with no adults in paid work. As with the overall headline results, these large forecast increases for particular subgroups of the population are largely a consequence of reductions in social security entitlements.

In order to reverse these trends in child poverty by 2030/31 and hit the child poverty targets in the Child Poverty (Scotland) Act, it will be necessary either to increase support for low-income families through the social security system substantially, or to find another mechanism for increasing net income for families in poverty (e.g. higher earnings and employment (Reed and Portes, 2014), or some other source of financial assistance such as a Citizens Income scheme (Reed and Lansley, 2014). Certainly, the forecasts contained in this report suggest that the child poverty targets are challenging.