Rachel Reeves is to lift the two-child benefit limit in the budget, a key demand of Labour MPs and child poverty campaigners, with officials exploring options of a tapered system instead.
The chancellor and Keir Starmer have said they expect to respond to recommendations of the child poverty taskforce at the budget, which is expected to say that lifting the two-child limit for universal credit and child tax credit would be one of the most effective ways to lift hundreds of thousands of children out of poverty.
Neither Starmer nor Reeves confirmed that they would scrap the cap in their speeches at the Labour party conference, but they have been emphatic about the need to address child poverty. The education secretary, Bridget Phillipson, is a known advocate, calling the cap introduced under the Conservatives a “spiteful policy”.
The prime minister also dropped a strong hint in his address to the conference, saying the change his government hoped to deliver was the “basic, ordinary hope of a better future for our children”.
No decision has been taken on what form the change will take. Officials are said to be wary of the escalating costs for extremely large families – those with more than six children may be entitled to thousands of pounds more in benefits if the cap is lifted completely.
There is also a parallel pressure to bear down on economic inactivity, and caution about a policy change that could incentivise people to stay out of the workforce.
The Treasury is exploring instead whether the additional benefits might be limited to three or four children, or whether there could be a tapered rate introduced so parents would get the most for their first child and less for subsequent children.
Another option under consideration is to lift the cap only for working parents on universal credit, to encourage more people into the workforce.
Government sources said they expected Reeves to take action in her November budget. “If we’re going to do it, we have to lift the cap, not just language,” one said.
Anything other than a full lifting of the limit is likely to draw criticism from child poverty campaigners because of the effect it might have on certain areas or communities. The End Child Poverty Coalition said: “This policy must be scrapped in full for all. Otherwise some families will be forced to remain in poverty because of this government’s choices.”
The Resolution Foundation said in March that a three-child limit or a tapered system would leave between 120,000 and 350,000 more children in poverty that if the cap were fully scrapped. It would save between £900m and £2.3bn a year if Reeves continued with a restricted system. About 59% of families affected by the two-child limit have someone in work.
In his speech at Labour party conference, Starmer gave a strong hint the government would take further action on child poverty. He said it had already extended free school meals to those on universal credit, calling it the “first step on our journey to end child poverty”.
“We have walked that road before, and we will walk that road again, because a Britain where no child is hungry, when no child is held back by poverty, that’s a Britain built for all,” he said.
Reeves told the Times this week that she expected to respond to the child poverty taskforce findings in November. “I’m a Labour chancellor and I want to reduce child poverty. I don’t want to see children growing up in poverty in Britain. Of course I don’t. We’ve got the child poverty taskforce report coming out shortly and we’ll respond to that at the budget.”
Starmer has previously signalled his personal desire to scrap the limit, which prevents parents from claiming child tax credit or universal credit for more than two children.
The cap affected 1.7 million children in England, Wales and Scotland last year, according to government figures, and scrapping it would cost about £3.5bn a year. Changes to the eligibility criteria might reduce that figure, with Reeves already facing a difficult budget on 26 November.
The former prime minister Gordon Brown, who has called the two-child limit “cruel”, argued last month that higher taxes on the gambling industry should be introduced this autumn and the revenue used to scrap it.
Sources at the Treasury, however, have said those taxes are already baked into its calculations for filling an expected £30bn hole in the government’s finances caused by an expected productivity downgrade by the Office for Budget Responsibility and U-turns on welfare and cuts to the winter fuel allowance.
Save the Children’s director of UK impact, Dan Paskins, said: “We agree with the prime minister that action they have taken so far on child poverty is the ‘first step’. The only logical next move is to scrap the two-child limit to benefits in full at the autumn budget. Time is ticking for Britain’s children.”
The Liberal Democrat work and pensions spokesperson, Steve Darling, said: “Any serious child poverty strategy must start with scrapping this unfair policy.”
Reform UK has already called on the government to scrap the cap. However, the shadow chancellor, Mel Stride, said the Conservatives would oppose the change. “Scrapping the two-child benefit isn’t just irresponsible. It’s unfair,” he said.
“Rachel Reeves must come clean. Where’s the money coming from? Will it be more and more debt, or even higher taxes? The UK is in the grip of Labour’s cost-of-living crisis and the public deserve the truth.”
A government spokesperson said: “We are investing £500m in children’s development through the rollout of best start family hubs, extending free school meals and ensuring the poorest don’t go hungry in the holidays through a new £1bn crisis support package.”
