Axing ‘cruel’ two-child benefit cap would reduce cost of poverty by over £3bn

Scrapping the two-child limit on benefits could save the UK more than £3.2bn by reducing the cost of child poverty, new research has revealed.

Experts at the New Economics Foundation have suggested that Labour ministers are failing to account for the “wider economic benefits that would result from lifting children out of poverty”. The report found that if the two-child benefit limit was dropped, it would save £1.7bn a year for public services in the medium term.

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It would also result in annual net earnings increasing by £1bn over the longer term, with an additional £540m returned to the government through taxation and lower spending on social security.

The Labour government has resisted scrapping the two-child benefit limit, in spite of extensive research showing it could lift hundreds of thousands of children out of poverty.

It means that families with a third child or subsequent children born after April 2017 are denied extra universal credit or tax credits, equating to a loss of nearly £3,500 a year for each child.

Sam Tims, senior economist at the New Economics Foundation, said: “The two-child limit is a cruel policy that not only keeps families in poverty but holds back people and places from achieving their economic potential.”

Poorer communities would benefit the most if the government dropped the policy. Constituencies in Birmingham, Bradford and Bolton would each receive an annual boost of around £10m.

Keir Starmer has previously said he is “not immune to just how powerful an argument” there is to scrap the two-child limit on benefits, but he has repeatedly said that he has to keep “control of the economy”.

A government spokesperson previously said: “No child should be in poverty – and we are committed to ensuring that children across the country have the best start in life.” It has established a ministerial taskforce to “look at all available levers across government” to help tackle child poverty, a move which has been welcomed by charities.

However, seven Labour MPs, including former chancellor John McDonnell, lost the Labour whip when they voted against the King’s Speech and for a motion which would see the two-child limit dropped.

Charities have also called on the government to drop the benefit cap, which puts a limit on the amount that families can receive through benefits.

Ending both policies from April 2025 onwards would cost central government £2.5bn a year, rising to £3.5bn by 2029/​30, according to the New Economics Foundation.

However, researchers estimates that scrapping the two-child limit and benefit cap would reduce the cost of child poverty by a total of £4bn a year by the end of this parliament.

If the caps are retained, researchers warn that half (49%) of children in larger families will be living in poverty by the end of this parliament.

“It”s clear that scrapping the two-child limit and the benefit cap are two of the most effective levels the state can pull to lift children out of poverty and a necessary investment for a government that wants to boost growth across the country,” Tims said.

“The long-term benefits of scrapping these policies, including easing pressure on our crumbling public services and boosting the future earnings potential of children in poverty, would help ensure prosperity in parts of the country that have been held back for far too long.”

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