2. Income-based support

2.1 Evidence from other poverty policy areas

In recent years, the Scottish Government and others have moved towards a cash-first model of support for those experiencing food insecurity. In 2023, the All Party Parliamentary Group on Ending the Need for Food Banks carried out an inquiry on effective responses to destitution^[3^]. The inquiry found that several of the main challenges with food-based support are mitigated by a cash-first approach, and they heard how cash grants offer a more accessible, dignified, and flexible form of support to people facing financial crisis. However, the evidence also cautioned against a one-size fits all approach, recognising that people should be able to access the support that suits them best. The Group also highlighted that cash-first approaches need to be part of a strong local support system that prioritises good coordination of local services and effective referral pathways to help target support and prevent crises from recurring.

Specifically, the Parliamentary Group found that, unlike other approaches, cash-first approaches can put money directly and immediately into people’s bank accounts, meaning that many of the barriers associated with accessing support can be mitigated. Furthermore, a common theme from the evidence received was that people experienced feelings of shame and stigma when they asked for support from food banks. In most cases cash was said to remove this barrier because cash places trust in people facing financial crisis as individuals with agency and gives them the choice to buy the things they need to suit their priorities^[4].

In 2022, the Scottish Government published an analysis of the responses to the consultation on their national plan to end the need for food banks^[5]. The analysis showed support for cash-first approaches to food poverty. Respondents on the whole were supportive of a cash-first ambition. They said it has the potential to offer a dignified response for those in need which can reduce stigma and promote choice, and is linked to income strengthening measures and referrals to other supports that aim to address drivers of poverty. There were some qualifications, however, respondents sought reassurance that measures would be taken so that people living in rural areas would not be disadvantaged, and others sought reassurance that alternatives could be put in place for those users who struggled to cope with managing money. Furthermore, those in debt may not be able to make full use of any money paid to them, and homeless and other at risk people are unlikely to have a bank account and may find handling cash challenging.

There were mixed views on the introduction of shopping vouchers. Some of the respondents commented that they supported vouchers/cards. At a minimum they were considered a reasonable short-term alternative to food banks, offering more choice and flexibility to the users, and a step towards a cash-first approach. A few said that vouchers offered an advantage over cash payments: controls could be placed over the types of goods purchased, to ensure that the vouchers were not used to buy items considered undesirable or non-essential^[6].

In June 2023, the Scottish Government published Cash-First – towards ending the need for food banks in Scotland: plan^[7]. The Plan sets out the Scottish Government’s ambition for a Scotland without the need for food banks. The Plan contains nine distinct actions over three years (2023-2026) to improve the response to crisis, using a cash-first approach so that fewer people need to turn to food parcels. The Cash-First Programme is a two-year fund of up to £1.8 million. The approach prioritises beneficiaries’ dignity and autonomy, enabling people to make their own choices to meet their essential needs. The interim evaluation of the Programme reviews the first year of activity (April 2024 – December 2024)^[8]. There are some early signs of cash-first approaches having a positive impact on reducing food insecurity, though long-term impacts are yet to be seen. Almost three-quarters of those who had been referred for wrap-around support (73%) were referred on to welfare rights/money advice services, with 11% being referred for fuel poverty support, and 3% being referred to housing support services. This wrap-around support provided is viewed very positively by beneficiaries, and further work in this space is likely to ensure long-term positive impacts for individuals and households. There is also some early evidence that the Programme is positively impacting on wellbeing through increased confidence, reduced stress, and by addressing isolation. To date, cash-first approaches have not reduced food bank use among all service beneficiaries, but there is qualitative evidence from some beneficiaries that they have used food banks less as a result of cash-first^[9].

In their response to the Panel’s call for evidence, Citizens Advice Scotland highlighted that support for food insecurity delivered through a cash-first approach allows greater choice over how people feed themselves and their family. However, advisers at rural and island CABs have fed back that some people they support prefer a referral to a food bank due to high prices in local shops, as well as high travel costs and lower availability of public transport. CAS argue that a similar choice should be afforded through measures to address fuel poverty, dependent on individual circumstances and demographics, and the way in which they pay for their energy.

2.2 Evidence from call for evidence

In response to the Panel’s call for evidence, respondents posited the following advantages for income-based support:

This type of support offers dignity, choice and flexibility to meet diverse household needs.
It recognises that people are best placed to know what is right for them. Evidence from across the Citizens Advice Network demonstrates that many people struggling with the cost of energy are likely to be facing difficulty in other areas such as rent arrears and council tax debt and priorities may need to vary from month to month.
People may feel they have more agency if they are given the choice about what they spend money on.
A cash-first approach can reduce stigma and can build trust and engagement. SFHA highlight that this approach can help build a relationship with “hard to reach” tenants and this can in turn generate additional anti-poverty support interactions.
Aligns with cash-first principles used in broader poverty strategies, including child poverty, food insecurity, and in other Scottish Government policy areas.
Helps households respond to multiple pressures beyond energy alone.
Can improve overall financial wellbeing where income is stable and debt manageable.

The following are disadvantages of income-based support as highlighted by respondents:

Is significantly less effective at reducing fuel poverty as technically defined.
Additional income is often absorbed by existing debt or urgent costs, without improving energy security or home warmth. There is a risk that this can lead to under heating of the home.
Does not address structural drivers such as poor housing quality or high energy costs.
There are some people for whom increasing household income may not support better outcomes or combat poverty. For example, people who experience financial abuse in the household. There is also a risk of diversion to harmful spending, for example on addictions or gambling.

Poverty and Inequality Commission commissioners generally supported a cash-first approach for many of the previously stated reasons, seeing it as consistent with wider poverty reduction strategies and offering flexibility and dignity to households. At the same time, commissioners acknowledged the distinctive nature of fuel poverty and the fact that the seasonal urgency and technical definition of fuel poverty may justify tailored interventions.

The Scottish Federation of Housing Associations also favoured a cash-first approach for wider poverty alleviation[10], noting, however, that this is dependent on the specific circumstances of the recipient and must sit alongside tailored support. They highlighted that for housing associations, income-based support is a cost-effective measure to prevent evictions, arrears, and the health implications of inadequately heated homes on health and care. The SFHA response provided two case studies of successful cash-first support.

Example one: Social Housing Support Fund/Fuel Insecurity Fund

SFHA administered the Scottish Government Social Housing Fuel Support Fund between 2021 and 2024. This supported a range of interventions which included both fuel vouchers and direct cash payments as well as advice programmes and energy efficiency measures. Phase three of the fund in particular was focussed on fuel crisis intervention and debt relief with applicants encouraged to adopt a cash-first approach, unless it would undermine the benefit to the individual (for instance where a direct bank transfer would be swallowed up by fees, or there is concern about domestic abuse).

Feedback from SFHA members suggested that the direct financial support offered through this fund and other similar schemes is most effective when coupled with tailored advice and support. For example, in one project financial support was tailored based on an individual income and expenditure exercise and bespoke support from an Energy Officer.

Beyond the financial benefits, the evaluation[11] of this fund also demonstrates projects which provided fuel vouchers or direct payments to clear fuel debt provided the largest social value returns and greatest impact on tenants’ wellbeing. However, despite the benefits, as short, term crisis support, such schemes would not impact the technical definition of fuel poverty.

Example two: Homeless Prevention Fund

SFHA developed a cash-first element of the £1m upstream Homeless Prevention Fund jointly administered with Homeless Network Scotland. This provides support to tenants who are at risk of homelessness and around £400k has been committed to cash payments via the following practice:

Direct transfers to bank accounts.
Collaboration with other local cash-first partnerships.
Alignment with support and advice services.
Commitment to reduce reliance on foodbanks.
To incentivise suitable tenancy transfers.
Flexible options to receive cash to suit the person.

SFHA members provided the following learnings on this approach:

Direct cash payments have enhanced engagement, trust, and dignity for tenants. The projects describe it as a cost-effective way to empower choice, reduce stigma, and create impact. Participants shared that tenants feel more comfortable opening up about other issues when this approach is taken.
Cash-First support is impactful when it is paired with tenancy support – projects are combining cash-first with tenancy sustainment, health, well-being, and household essentials.
Some projects are designing direct-to-supplier payments for value and convenience, rather than tenants receiving cash themselves. Others provide delegated authority to spend: it may depend on the relationship between the tenant and the landlord, the individual’s needs, and the ease of accessing goods or services in the area.
Cash-first at key points of intervention are useful for prevention activity (e.g. supporting tenants with rental arrears in avoiding evictions or providing support to new tenants so they don’t immediately fall behind on rent with the costs of fitting white goods in their home).
The cash-first approach has identified areas for improved information dissemination through applications (e.g. awareness raising on other support tenants might be eligible for).

SFHA also drew attention to a cash lump sum trial for people experiencing homelessness run by the Centre for Homelessness Impact. Evaluation of this trial is being undertaken by researchers at the Policy Institute at King’s College London. As a randomised control trial, half of all the people taking part have been given an unconditional cash sum of £2,000 and the other half will continue to receive support from homelessness charities and other services. Researchers will assess after one year the impact on participants’ housing stability and any impact on their housing quality and satisfaction, wellbeing, financial security, social connectedness and contact with public services and the criminal justice system. Initial observations show that participants use the sum to invest in a better future for themselves, including spending on the likes of household goods and training to boost their job prospects[12].

2.3 Evidence from the literature – the impact of labelling fuel poverty support

Government transfers to households and individuals are often given labels indicating that they are designed to support the consumption of a particular good or service. When such transfers are made in cash there is no obligation to spend all, or even any, of the payment on its intended purpose. Standard economic theory implies that the label of a particular transfer should have no bearing on how that transfer is ultimately spent since all income is fungible. However, Beatty et al’s 2014 study found statistically significant and robust evidence of a substantial labelling effect[13]. Using data from The Living Costs and Food Survey (LCFS) pooled from 2000 to 2008, the authors found households spent an average of 47% of the Winter Fuel Payment (WFP) on household fuel. If the payment was treated in an equivalent manner to other increases in income the authors would expect households to spend only about 3% of the payment on fuel. The authors conclude that if labelling cash or cash-equivalents influences how they are spent, then governments might use labels innovatively to increase consumption of particular goods or services that are thought to be under-consumed.

In their 2019 research looking at the effects of the Winter Fuel Payment, Angelini et al discussed the concept of mental accounting, first developed by Richard Thaler^[14]. They highlight that individuals have a system of mental accounts in which they group categories of income and expenditure (e.g. food, entertainment, housing). Each of these mental accounts might have a specific budget and the marginal propensity to consume can differ across them. Within this framework, individuals are particularly susceptible to sources of income labelled according to one of their mental accounts. Mental accounting, therefore, suggests that the label attached to cash transfers can affect consumption patterns. Although this payment can be spent on any goods and services, labelling the cash transfer as payment for ‘winter fuel’ attempts to ‘nudge’ recipients towards increasing domestic heating, thereby combating fuel poverty.

Research aligned with these findings was presented at the Understanding Society Scientific Conference in 2025[15]. The presenter, Paulo Santos Morais, looked at the labelling effects of the Winter Fuel Payment using data from the UK Household Longitudinal Survey (UKHLS) (2009-2017) and a Multi-Cutoff Regression Discontinuity Design. The research found that the following:

WFP-eligible households increase their annual fuel spending by 6.40 per cent on average, compared to the ineligible group, with the strongest effects observed among unhealthy recipients.
Among unhealthy recipients, the WFP not only prompts increased spending on fuel but also leads to significant improvements in self-reported health.
By linking UKHLS data to outside temperature data, the labelling effect is more pronounced during milder winter conditions, when heating is more discretionary, as indicated by significant increases in home temperature.
The labelling effect is also stronger for individuals not receiving benefits, who have to apply for the payment, reinforcing the importance of the label’s salience.