Making changes to Universal Credit – including scrapping the two-child limit – would remove more youngsters from poverty than increasing child benefit payments, new research has concluded.
Independent experts at the Scottish Parliament Information Centre (Spice) concluded this would be “the most effective” of three different policy options they examined.
While changing the child elements of Universal Credit and increasing child benefit payments by £18.45 a week – costing £800 million a year to implement – would both lead to falls in child poverty, Spice concluded cutting the lowest rate of income tax in Scotland to 0% would actually increase the problem.
Abolishing the 19p starter rate of income tax would also cost the Government £800,000 a year and would only benefit families where at least one person is working.
Poorer families would benefit less as they are less likely to be paying income tax, with Spice also warning such a change could result in them losing out on some means-tested benefits.
“Reducing the starter rate of income tax to 0% would be expected to have a small negative effect on child poverty,” the report found.
Spice carried out the analysis in the wake of the Scottish Parliament passing legislation that sets out to cut relative child poverty to less than 10% by 2030-31, while reducing absolute child poverty to below 5%.
Almost a quarter (23%) of children were living in relative poverty in 2016-17 – with this forecast to increase to 27% by 2023-24.
Interim targets set as part of the Child Poverty (Scotland) Act 2017 say by then relative and absolute child poverty should be reduced to under 18% and less than 14% respectively.
The Spice research found increasing child benefits by £18.45 a week would result in 24% living in relative poverty.
But making changes to Universal Credit, by removing the two-child limit, increasing the child element of the payment and reintroducing a family element, could take the child poverty rate down to 22%.
The report noted: “Although this is still higher than the interim target of 18%, it is more effective than the other policy options analysed.”
Spice said the changes to Universal Credit “considered are specifically targeted at poorer households with children so have a larger impact for those households at the bottom of the income distribution and the biggest impact on child poverty”.
As child benefit is not means tested, the report said all families with children would gain from an increase, adding that the “impact of this policy is not directed at poorer families”.
A spokesman for the UK Department for Work and Pensions said: “The UK Government is tackling poverty, with absolute poverty in Scotland now lower than in 2010 and unemployment at a record low.
“The two-child policy ensures fairness by asking families on benefits to face the same financial decisions as people supporting themselves solely through work.
“We have also strengthened safeguards and exceptions for vulnerable families, as well as boosting the amount people can earn under Universal Credit by £1,000 before their payment starts being reduced.
“Scotland has significant welfare powers to make further changes and can top-up existing benefits, pay discretionary payments and create entirely new benefits altogether.”