Budget Preview 2 - Implications for Scotland of abolishing the two-child limit

14th November 2025

Fraser of Allander Institute article yesterday in a budget preview set out the Implications for Scotland of abolishing the two-child limit".

The institute estimates that if the two‑child limit on Universal Credit (UK policy) were abolished, the Scottish Government's cost saving via its mitigation payment (the Two‑Child Limit Payment or TCLP) would be around £155 million in 2026-27.
FAI

They estimate "spill-over" costs to the Scottish Government of about £34 million in 2026-27, due to extra families qualifying for other devolved benefits.

That leaves (in a conservative scenario) about £121 million available from these savings to be redirected into other policy options.

The abolition of the two-child limit itself is estimated to reduce relative child poverty (after housing costs) by about 1 percentage point in 2026-27 (which corresponds to roughly 10,000 children).

Illustrative policy-options and their impacts

The article models five example policy uses of the available (~£121 m) resources, each with estimated impact of ≈1 percentage point reduction in child poverty (after housing costs) in 2026-27 (i.e., another 10,000 children).

The options:

Raise the Scottish Child Payment: Increase the weekly payment per child.

Extend Scottish Child Payment to dependents aged 16-19: Currently it is for children under 16; extending it would cost ~£31m and reduce child poverty ~1 ppt. (The table lists this as option 2).

Increase the Best Start Grants and Best Start Foods by the same proportion: These are targeted at younger children/infants. Cost ~£34m.

Extend universal free school meals from P1-P5 to include P6-P7: Modelled to cost ~£30m, though the article notes this option would not show a measurable aggregate reduction in child poverty in their modelling.

Increase the maximum discount on water & sewerage charges (from 35% to 100%) for families with children: Cost ~£34m; also projected ~1 ppt reduction in child poverty.

Notes and trade-offs described:

Option 1 (raising Scottish Child Payment) is simple, but may worsen the "cliff-edge" effect (where a small income increase causes loss of the benefit) and would benefit many families who are not currently in poverty.

Option 2 is more focused (targeting older children) and may mitigate the cliff edge somewhat; though younger children remain the priority in many analyses.

Option 3 targets younger kids (via Best Start) but is based on one-off grants rather than recurring payments; so its impact may differ in terms of work incentives.

Option 4 (extending free school meals) would help some households but in the modelling doesn't change aggregate poverty numbers—perhaps due to the distribution of benefits or take-up issues.

Option 5 (water/sewerage discount) has more gradation across incomes (benefits tapering) but may end up benefiting some higher-income households; its design and take-up matter.


If the two-child limit is abolished, Scotland could redirect significant funds (£121 m after spill-overs) into further child-poverty-reduction measures. Each of the five illustrative options modelled could reduce relative child poverty by 1 ppt in 2026-27 (10,000 children) — though the options differ in target population, design trade-offs, and implications for work incentives and benefit cliffs.

The outcome will be known on 26 November 2025 - budget day.

Read the full Fraser of Allender article HERE