Financial sustainability in the context of Scotland's budget
The Scottish Government has announced its commitment to mitigate the two-child limit on certain benefits from 2026-27, a policy affecting households with more than two children receiving Universal Credit or Child Tax Credit, introduced in 2017. This decision is expected to keep around 20,000 children out of poverty, resulting in a 2 percentage point decrease in the relative child poverty rate.
According to the Scottish Government's child poverty modelling, the policy is estimated to cost £165 million in 2026-27, with the cost rising to £198 million by 2029-30. The Fraser of Allander Institute, an independent economic research institute, has estimated that mitigation payments would apply to approximately 42,000 children at a cost of £3,609 per child per year in 2026-27, totaling around £151 million annually.
The removal of the two-child limit is seen as a highly cost-effective policy by an independent think tank, with an estimated annual cost of £4,500 per child lifted out of poverty. These estimates underscore the substantial financial commitments required to end the two-child limit and make a difference in child poverty.
Delivering on the legal commitments to reducing child poverty will require further significant spend by the Scottish Government, ensuring it is appropriately planned, evidenced, and delivered in a fiscally sustainable way. Mitigation of the two-child limit is likely to be an effective way of making progress towards meeting Scotland's 2030 child poverty targets.
It is important to note that the two-child limit applies only to children born after 2017. As of April 2024, 27,000 households in Scotland were subject to the limit. The Scottish Government's decision to mitigate the two-child limit was not included in the Scottish Fiscal Commission's forecasts alongside the budget.
The devolution of certain powers means that spending on areas like social security, social care, higher education, and housing in Scotland is higher per person than in the rest of the UK. New statistics on child poverty targets will be released in March 2025.
Sources: [1] Scottish Government, (2024), Child Poverty Delivery Plan: 2023-2030. [Online] Available: https://www.gov.scot/publications/child-poverty-delivery-plan-2023-2030/
[2] Scottish Government, (2024), Child Poverty Modelling Report 2024. [Online] Available: https://www.gov.scot/publications/child-poverty-modelling-report-2024/
[3] Fraser of Allander Institute, (2024), The Impact of the Scottish Government's Two-Child Limit Mitigation. [Online] Available: https://www.fraserofallander.org/research/the-impact-of-the-scottish-governments-two-child-limit-mitigation/
[4] Scottish Government, (2024), Child Poverty Modelling Report 2024. [Online] Available: https://www.gov.scot/publications/child-poverty-modelling-report-2024/
[5] Joseph Rowntree Foundation, (2024), The Cost of the Two-Child Limit: An Update. [Online] Available: https://www.jrf.org.uk/report/cost-two-child-limit-update
In light of the Scottish Government's decision to mitigate the two-child limit, the finance ministry may need to consider additional funding for business and general news sectors to cover the estimated annual cost of £151 million in 2026-27, a cost that is expected to rise by 2029-30. The abolition of the two-child limit is also expected to have significant implications for politics, as it may spur debates on welfare policies and child poverty reduction strategies.
