SNP accused of creating ‘poverty trap’ over child payment which discourages work

The Scottish Child Payment, worth £26.70 per week to eligible parents, falls off cliff edge if they earn even £1 more

The SNP’s flagship welfare policy has been branded a “poverty trap” after it emerged taking on paid work risks costing claimants thousands of pounds a year.
The Scottish Child Payment, worth £26.70 per week to eligible parents for every child aged under 16, has been trumpeted by nationalists as one of their proudest achievements and they claim it has lifted tens of thousands out of poverty.
However, a report quietly released by the Scottish Government on Wednesday acknowledged problems with the way it had been structured, meaning some applicants will become poorer if they boost their incomes through employment.
The anomaly occurs because unlike Universal Credit (UC), which is administered by the UK Government and is designed to incentivise work by gradually reducing as earnings go up, parents are either entitled to the Scottish Child Payment in full or not at all.
It means recipients face losing almost £1,400 per year for every child if they increase their earnings just enough so that they no longer receive any UC.
Under a “cliff edge” scenario created by the SNP, a couple with three children and a mortgage who earn £2,925 per month in Scotland would become more than £4,000 per year poorer if they increased their income by just £1.
While ministers could try to fix the issue by introducing a “taper” system similar to UC, it would prove complex and heap significant further costs to a policy already costing taxpayers £460 million per year.
“The SNP have created a poverty trap where there are powerful disincentives rather than incentives to work,” Stephen Kerr, a senior Scottish Tory MSP, said.
“People are trapped on low incomes. Instead of encouraging people to take on more work and move to a point where they are free of the need for welfare, the SNP is doing the very opposite.
“The SNP Government should put helping people into good jobs at the heart of their anti-poverty strategy but instead they have created a social security system which actually penalises people who want to do the right thing.”
The report published by the devolved administration admitted that the situation would leave some claimants with an effective tax rate that would “exceed 100 per cent” for extra earnings and that “individuals can face a net financial loss of earning more through paid work.”
The research identified a “spike” in low award UC claims when Scottish Child Payment eligibility was expanded in November 2022.
It acknowledged this “could reflect SCP incentivising clients to not earn above the UC threshold.”
While the report said evidence did not suggest the situation was impacting the labour market “at scale” in Scotland, it said more in depth research was needed to assess the full impact.
Under an example of a “cliff edge” scenario, a couple who owned their home with three young children could earn £2,925 in paid work and still be entitled to a nominal UC payment.
This would make them eligible for £320 every four weeks in Scottish Child Payment, giving them a total monthly income of £3,530, also including child benefit, according to impartial Holyrood researchers.
However, if they increased their earnings through work to £2,926, their cut-off point for UC, they would lose the entirety of their Scottish Child Payment.
This would leave them with a monthly income of £3,184, making them £346 per month or £4,152 per year poorer as a result of earning a higher amount through work.
Mr Kerr added: “Choosing to work should always be more financially lucrative than being in receipt of benefits and nearly everyone would want to choose work as long it doesn’t make them worse off.
“But when the SNP Government deliberately creates an all-or-nothing cliff edge, people will understandably make decisions to suit themselves and their short-term circumstances.
“They have acknowledged their policy is letting people down, they must now fix it.”
The child payment was introduced under Nicola Sturgeon in 2021, using powers to create Scottish-only benefits devolved to Holyrood after the independence referendum.
Eligibility and the level of Scottish Child Payment has expanded rapidly from an initial £10 per week. The policy is often lauded by the SNP as a “game changing” intervention  and claims it has lifted about 60,000 children out of poverty.
However, Sir Keir Starmer pointed to figures on Wednesday which showed that since the SNP came to power in 2007, 30,000 more children north of the border were in poverty.
A Scottish Government spokesman said: “This new publication explores how Scottish Child Payment interacts with the labour market in Scotland and concludes it is not negatively affecting work incentives at scale in the economy.
“Previous analysis shows the payment is estimated to keep 60,000 children out of relative poverty in 2024-25.”