Scrapping the restrictive two-child benefit cap entirely could help elevate 630,000 children out of poverty, according to experts’ analysis. The Institute for Fiscal Studies (IFS) has identified this move as a highly efficient method for combating child poverty. It is anticipated that Keir Starmer will make adjustments to or eliminate the policy put in place during the Conservative government’s time as part of an upcoming review focused on child poverty.
The government is exploring various alternatives to replace the existing two-child limit, which impacts Child Tax Credits and Universal Credit for only the first two children in a family. One option being considered is the implementation of a new tapered rate system where parents receive a higher amount for the first child and a reduced amount for subsequent children.
While some Labour MPs advocate for complete abolition of the limit, the IFS has proposed ways for Chancellor Rachel Reeves to partially reverse the cap to mitigate the cost of complete removal. By exempting working families from the limit, the expenditure would decrease to £2.6 billion, leading to a reduction of child poverty by 410,000. Alternatively, providing payments for the third and subsequent children at half the rate of the first two would cost around £1.8 billion and alleviate poverty for 310,000 children.
However, the authors caution that these measures would not be as effective in reducing poverty when compared to a full reversal. The IFS estimates that a complete reversal would require around £3.6 billion but would elevate approximately 630,000 children out of poverty in the long run.
Tom Wernham, a senior research economist at IFS, emphasized the cost-effectiveness of reversing the two-child limit as a means to promptly address child poverty. He highlighted various options to partially reverse the policy that would be less expensive than a full repeal. Ultimately, the government must determine its priorities in assisting families and shaping the benefit system.
In response, a government spokesperson emphasized the commitment to providing every child with equal opportunities, regardless of their background. The Child Poverty Taskforce is set to unveil a comprehensive strategy aimed at addressing the underlying causes of child poverty. Additionally, investments totaling £500 million are being made in children’s development through initiatives such as the Best Start Family Hubs, extending free school meals, and ensuring vulnerable children have access to food during school holidays through a £1 billion crisis support package.