Welfare reform - impact on households with children: report

1 Executive Summary

• Reversing key UK Government welfare reforms that have occurred since 2015 would bring an estimated 70,000 people out of poverty in Scotland, including 30,000 children, in 2023-24.
• Each of the following interventions, in isolation, would bring around 10,000 children out of poverty:
  • Re-instating the £20 uplift to Universal Credit
  • Reversing the benefit freeze
  • Reversing the two-child limit and the removal of the family element.
• Reversing all reforms would increase disposable income for households with children with the lowest 10% of incomes by around 11%, and for households in poverty with children by 10%.
• The total cost of reversing these reforms would be around £780 million per annum, including £50 million in increased expenditure on existing benefits provided by the Scottish Government such as the Scottish Child Payment (£20 million) and Discretionary Housing Payments (£30 million) as a result of increased eligibility for these benefits.
• Of these reforms, the most cost-effective way to reduce child poverty would be to reverse the two-child limit and the removal of the family element at a cost of £120 million. The least efficient way would be to re-instate the £20 uplift at a cost of £540 million.
• Re-instating the £20 uplift would move the most people out of poverty (30,000), followed by reversing the benefit freeze (20,000). The most cost-effective method would be to reinstate the £20 uplift while also reversing changes to the Universal Credit earnings taper rate and work allowances, at a cost of £320 million.
• Adjustments to Universal Credit work allowances and the earnings taper rate were a cost-effective way to lift working households out of poverty – reversing this change would push 10,000 people into poverty. However, these changes only affected households in employment, which tend to be closer to the poverty line.
• Work incentives for households with children are highly dependent on eligibility thresholds and earnings levels. Changes to the Universal Credit earnings taper rate and work allowances generally reduce the proportion of additional earnings which are lost to taxes and a reduction in benefit entitlements, but some reforms can lead to perverse outcomes as a result of the interaction between policies.