The Scottish Government have set out how they plan to reallocate savings from the abolition of the two-child limit – kind of. While we welcome additional clarity provided by a news release this morning, the picture that emerges is still murky and unlikely to instil confidence that the Scottish Government is taking the action needed to meet its goal of eradicating child poverty.
In their November budget, the UK Government announced that the two-child limit to Universal Credit would be removed from 2026-27. This generates savings for the Scottish Government, which had planned to mitigate the limit with a new benefit payment.
The First Minister previously pledged to recycle any such savings into further measures to tackle child poverty. Ahead of the UK Budget, we modelled some options within social security. And last week, a news release laid out a plan for reallocating the £10m that would have gone to mitigation this financial year. We had hoped to see a similar plan in the Scottish Budget for the funds destined for mitigation next year.
As we noted in our initial reaction to the Budget, the reallocation of savings was not clear in the Budget itself. The news release published this morning attempts to set the record straight.
What is really new?
The SFC estimate that the savings from the no-longer-needed mitigation payment will amount to £141m in 2026-27. However, abolishing the two-child limit will also cost the Scottish Government £14m by increasing the caseload of some devolved benefits.
Before the Budget, we noted that it was a political choice as to whether or not these ‘spillover’ costs would be netted off from the savings that would be reallocated to child poverty reduction policies. That choice has now been made. According to the news release, the Scottish Government is indeed taking the less costly route of only counting net savings, leaving £126m to be reallocated to poverty reduction policies next year.
But even this spending is not all new.
The news release states that £21m will go to uplifting the Scottish Child Payment (SCP) by inflation. The implication here is that SCP would not have been uprated – that is, it would have been cut in real terms – had the two-child limit not been abolished. This is clearly not tenable as a policy position; and in any case, SCP is required under law to be uprated by inflation. Under no reasonable definition can this be considered additional spend.
Another £111m will go to a combination of the Tackling Child Poverty Fund (TCPF) (£61.5m) and Whole Family Support (£50m). The figure for the TCPF is the total size of the fund – it was previously £12.5m, so the increase is only £49m. There was no previous commitment to continue the Fund beyond 2025-26, so in theory the budget could have been zero – but only in theory.
As we noted in our budget reaction, there are a number of smaller policies in the Budget that are not mentioned in the news release but which are relevant to child poverty, such as changes to Free School Meals. However, the Scottish Government is not attributing these to the two-child limit savings. From 2027-28 we will also see the introduction of the SCP premium for babies, rising from a cost of £3m in that year to £7m per year thereafter.
Overall, the information published by the Scottish Government does not convincingly demonstrate that Scotland will spend as much on child poverty reduction as it would have had the two-child limit stayed in place. Whichever way you cut the figures, any additional spend resulting from the two-child limit savings will be less than £126m next year.
Looking ahead
There are broader issues here. Our previous work has emphasised both that it is very difficult to tell how much Scotland spends on reducing child poverty, and that significant additional investment will be needed to meet the 2030 child poverty targets.
The budget documents, and the Spending Review published alongside them, don’t really help with either issue. It’s still hard to separate out new announcements from additional spending, single from multi-year amounts, and spending directly on families with children from more general funds. We also don’t see much evidence of the level of spending we’d expect to need to reach the 2030 targets.
More information on both these issues will hopefully be forthcoming in March, when the last child poverty delivery plan will be published. We’ll be providing commentary on that, along with new child poverty statistics – stay tuned!
Authors
Spencer is a Senior Knowledge Exchange Fellow at the Fraser of Allander Institute.
Hannah is a Fellow at the Fraser of Allander Institute. She specialises in applied social policy analysis with a focus on social security, poverty and inequality, labour supply, and immigration.