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Poverty, Scottish Economy

Would increasing Scotland’s childcare offer help to meet the child poverty targets?

Progress towards meeting child poverty targets has stagnated

The latest data for 2020-23 shows that 24% of children in Scotland live in relative poverty.

The Scottish Government has four income-based statutory targets to reduce child poverty in Scotland by 2030, one of which is a 10% rate of relative child poverty. Relative poverty is measured as disposable income below 60% of median UK income, often presented both before and after housing costs are removed from disposable income.

Progress on child poverty has been stagnant over recent years, leaving achievement of the 10% relative child poverty target by 2030/31 in doubt. Scotland is also unlikely to have met the interim targets for 2023/24.

The lack of progress on the child poverty targets is despite the introduction of the Scottish Child Payment (SCP), which started in 2021 at £10 per week per child under 6 for households already receiving certain benefits. In November 2022, SCP was fully rolled out to all children under 16 in qualifying households at £25 per week.

Many hoped that SCP would make significant progress towards meeting the child poverty targets, but there is not much sign of an impact in available aggregate data. Advocacy groups, policymakers, and researchers are now exploring other policy options for tackling child poverty.

What role might be played by an increased childcare offer?

Recently, a team of FAI researchers contributed to a JRF report exploring the potential impact of increasing the early years childcare offer on child poverty. Our work in this project builds on our previous work looking at large, national level, devolved policy levers that the Scottish Government could use to meet child poverty targets.

The report combined polling of parents with young children with the FAI’s modelling of different childcare offer scenarios.

Polling of parents suggests that while parents value the significant uplift in funded childcare available for families with 3 and 4 year olds in Scotland, families experiencing poverty still struggle to afford, and therefore access, childcare – particularly for younger children. In families on low incomes, parents may be locked out of the labour market or stuck in less secure or lower-paying jobs while childcare costs eat into household budgets.

However, our modelling results show that even under the strongest possible assumptions about how increasing childcare might affect parents’ work hours and pay, childcare policy alone won’t meet the child poverty targets. Reductions in child poverty from increasing the childcare offer range from 1-5 percentages points (pp) by 2030/31, representing at most a third of the progress needed.

Ultimately, we conclude that while a new childcare offer for younger children is needed, Scotland will also need additional complementary policies to reach the child poverty targets by 2030/31.

How an increased childcare offer and higher parental employment might affect child poverty

Increasing the childcare offer has the potential to increase household income if parents are able to work more hours or obtain higher-paying jobs.

Polling of parents with young children showed a preference for 25 hours of childcare for 1-2 year olds and 35 hours for 3-4 year olds. Assuming a 30 minute commute to work, this offer would allow parents of 1-2 year olds to work 20 hours a week and parents of 3-4 year olds to work 33.5 hours. JRF estimate that this childcare offer would cost an additional £2.2 billion.

We model an increase in childcare and parental employment through four scenarios, each assuming different hours of work and rates of pay. In each scenario, the rate of employment among parents of under-5s is adjusted to match that of parents with school-aged children.

Table 1: Assumed hours of work and pay rates for parents moving into work – Four scenarios

Scenario name Rate of pay for those increasing or moving into work Hours of work for parents where…
Youngest child aged 1 or 2 Youngest child aged 3 or 4
Baseline Nothing is altered
NLW National Living Wage 20 33.5
Average wage Average wage by gender of parent and age of their youngest child 20 33.5
More equal economy Average wage for men by the age of their youngest child 20 33.5
Maximum work Real Living Wage 37.5 37.5

Table 1 shows different combinations of hours worked and pay rates we assume for parents moving into work as a result of having an increased childcare offer.

We start with a minimal scenario where parents moving into work earn the National Living Wage and work the hours suggested by polling of parents. We then test different wage rates with those same hours, and end by modelling a scenario where all working parents earn at least the Real Living Wage and work full-time jobs (37.5 hours per week).

Table 2: Modelling results – The impact of an increased childcare offer on child poverty

Scenario name Modelled child poverty rate in 2030 Reduction (percentage points) Scottish Child Payment required to meet 2030 target
Baseline (no change) 21.2% 250-255
NLW 20.2% 1.0 220-225
Average wage 19.9% 1.2 215-220
More equal economy 18.3% 2.9 175-180
Maximum work 15.9% 5.3 130-135

Table 2 shows how these scenarios are predicted to affect child poverty.

The reduction in child poverty from moving more parents of younger children into work is relatively small, around 1 percentage point (pp).

It is only by reducing gender inequality for parents with children aged 1-4 under the more equal scenario that we see any larger impact on child poverty (a reduction of about 3pp).

However, the poverty rate remains 8.3 percentage points above the 2030 target. Furthermore, achieving equal pay for men and women would require major changes to the labour market, particularly for mothers entering the labour market.

The largest fall (5.3 percentage points) in child poverty levels comes when all parents are moved into full-time work and earning at least the Real Living Wage, lifting 52,000 children out of poverty. However, this still leaves child poverty levels nearly 6 percentage points above the 2030 targets and would require significant increases in nursery places, parental employability services and full-time employment (that is tailored to parents).

The last column of Table 2 shows the estimated levels of SCP required alongside increased parental work to meet the 2030/31 child poverty targets.

Even under the most extreme scenario, SCP would need to rise to £130-135 per week, per child under 16 to meet the relative child poverty target for 2030/31.

Policy takeaways

An increased childcare offer would meaningfully address issues around child poverty and low-income families being left behind in labour markets. However, the extent to which an increased childcare offer for young children would reduce child poverty is both limited and costly. Targeted offers that prioritise low-income households are likely to provide more cost-effective reductions in child poverty.

Furthermore, it is unlikely that childcare alone will enable Scotland to reach the 2030/31 child poverty targets. Complementary policies in areas like social security and employability are needed in combination with an increased childcare offer to meet child poverty targets.

As always, we look forward to seeing more research on potential suites of policies that might be combined to target child poverty most effectively.

Authors

Hannah is an Associate at the Fraser of Allander Institute. She specialises in applied social policy analysis with a focus on income, poverty, and inequality.

Ciara is an Associate Economist at the Fraser of Allander Institute. She has a broad research experience across different areas including poverty and inequality, the voluntary sector, health, education, trade, and renewables and climate change. Ciara has an MSc in Applied Economics (Distinction) and a first-class BA Honour’s degree in Economics and Finance, both from the University of Strathclyde.

Emma Congreve is a Senior Knowledge Exchange Fellow and Deputy Director at the Fraser of Allander Institute. Emma's work at the Institute is focussed on policy analysis, covering a wide range of areas of social and economic policy.  Emma is an experienced economist and has previously held roles as a senior economist at the Joseph Rowntree Foundation and as an economic adviser within the Scottish Government.