Labour is reportedly considering scrapping the two-child benefit cap following pressure from backbenchers, campaign groups and political opponents.
Ahead of the Budget on 26 November, Rachel Reeves has given the strongest hint yet that Labour could abolish the controversial policy, saying she does not think it is right that children are “penalised” for being part of large families.
Speaking on BBC 5Live, the chancellor said it was important not to let the “costs to our economy in allowing child poverty to go unchecked”. She added: “In the end, a child should not be penalised because their parents don’t have very much money.”
The chancellor’s comments suggest that action will be taken on the cap, likely either at the Budget or as part of the government’s delayed child poverty strategy, which is due before the end of the year.
However, it is understood that the Treasury is considering ways to tweak the limit, rather than removing it completely – a move former prime minister Gordon Brown recently warned against.
This could be done by increasing the limit to three or four children, or by introducing a taper rate that would see parents receive higher entitlement for their first child and less for subsequent children.
Here’s everything you need to know about the policy:
What is the two-child cap?
The two-child benefit cap prevents parents from claiming universal credit or tax credit for their third child. It was introduced by the Conservatives and came into place in April 2017. It only applies to children who were born after 6 April 2017.
The measure was announced by then-chancellor George Osborne alongside a raft of other changes to the benefits system. The Conservatives said the measures were designed to encourage benefit recipients “to make the same choices as those supporting themselves solely through work”.
Latest official figures show that 1.6 million children are living in families affected by the policy. Campaigners, charities and politicians from across the spectrum have called on the government to scrap the measure.
It is a separate policy to the benefit cap, which was also introduced under the then-Conservative and Liberal Democrat coalition government, which sees the amount of benefits a household receives reduced to ensure claimants do not receive more than the limit.
What is the effect of the two-child cap?
Organisations working in the sector argue that 109 children across the UK are pulled into poverty by the policy every day.
The number of children living in poor households has been steadily increasing over the past decade, with 4.5 million children – around one in three – now living in poverty.
Poverty can be defined in several ways, but the Department for Work and Pensions (DWP) uses “relative low income” as a marker, referring to people in households which earn below 60 per cent of the median income of £36,700 in 2024, or £22,020.
Some of these children are going without essentials, according to the Joseph Rowntree Foundation, such as food, heating, clothing or basic toiletries.
Removing the two-child benefit cap could lift 350,000 out of poverty, according to analysis from researchers at the Child Poverty Action Group (CPAG).
What would scrapping it cost the government?
The estimated cost of removing the two-child limit, extending it to three children, or removing a household cap varies.
Getting rid of the cap could cost the government £3.5bn in 2029-2030, according to estimates from think tank the Resolution Foundation earlier this year. Meanwhile, CPAG suggests that the move would cost £2bn.
The Independent’s own calculations suggest that extending the limit to three children could cost at least £1.3bn a year, assuming that 370,000 households claim an extra £3,513 of UC each year.
Consecutive governments have refused to commit to removing the cap, despite its unpopularity with voters.
Last year, Sir Keir enforced the whip on seven Labour MPs who voted against their party to oppose the two-child benefit cap.
The current Labour government had consistently maintained that it would not take action to remove the cap, due to tight resources in the Budget, yet Sir Keir’s statements last week appeared to open up the possibility of a U-turn.
