The Government is currently deliberating potential reforms to the controversial two-child benefit cap, with the aim of alleviating its detrimental effects on children living in poverty. Advocacy groups, charitable organizations, and some members of the Labour Party have long been vocal in their calls for the cap’s elimination. The Child Poverty Action Group (CPAG) has estimated that abolishing the cap could immediately lift 250,000 children out of poverty and enhance the living conditions of an additional 850,000 children.
Despite these compelling arguments, government officials have been hesitant to act, primarily due to the significant financial implications. Estimates suggest that removing the cap could impose a substantial burden on the Treasury, potentially costing upwards of £3.6 billion annually, according to the Institute of Fiscal Studies (IFS), while the CPAG places the figure at around £1.7 billion.
The sentiment against the cap is so intense that in July 2024, seven Labour MPs were prepared to relinquish the party whip in order to support an amendment aimed at its abolition. There are growing concerns within the party that another revolt may emerge, as numerous Labour MPs have expressed that the issue of scrapping the cap is a unifying cause across various factions within the parliamentary party. It has been indicated that MPs may be more inclined to voice their concerns if the Government’s long-awaited strategy to combat child poverty does not include a definitive commitment to abolishing the cap.
With the Treasury unlikely to approve the abolition in the near future, the Department of Work and Pensions (DWP) is reportedly considering alternative strategies to mitigate the adverse effects of the existing policy.
Exempting Under Fives
As reported by The Guardian, one significant proposal under consideration is to exempt parents with children under the age of five from the cap. This approach aims to provide much-needed financial relief during the crucial early years of child development, addressing the heightened expenses families encounter during this formative period. An insider revealed, “Officials are eager to lessen the burden of the cap, if not eliminate it entirely. They are exploring various options, and currently, assisting parents of young children appears to be the most feasible.”
This strategy is further supported by a recent analysis from the Fabian Society, highlighting that approximately 1.2 million children aged four and under live in households earning less than 60% of the median income after housing costs. Alarmingly, nearly half of these children are categorized as living in “deep poverty,” surviving on less than 40% of the median income. A spokesperson for the DWP stated, “We do not comment on speculation. Our ministerial taskforce is examining all potential measures across government to ensure every child has the best start in life.”
Exempting Parents of Disabled Children
Another avenue being explored involves exempting parents of disabled children from the two-child limit. Research conducted in 2024 by the End Child Poverty Coalition (ECPC) indicated that the two-child limit disproportionately impacts families with at least one disabled child. Approximately 20% of households affected by the cap include a disabled child, which translates to around 87,500 families. The CPAG has also pointed out that households with disabled individuals are often more severely affected by the two-child benefit cap. “Disabled individuals typically have lower incomes than their non-disabled counterparts and frequently incur additional costs related to their disabilities,” the charity noted in a 2024 report. “Consequently, these households are particularly vulnerable to being pushed into deep poverty as a result of the two-child limit.”
Exempting Employed Parents
Another possibility on the table is the exemption of employed parents from the cap, with the hope that this policy could incentivize employment among parents. Critics argue that the existing cap disproportionately burdens low-income working families relying on benefits to augment their earnings. Data published by the ECPC in 2024 revealed that approximately 81% of two-parent families affected by the limit have at least one working parent. Joseph Howes, the chair of the group, stated, “The two-child limit is a flawed policy that drives families—many of whom are already working—into poverty. Any credible plan to reduce child poverty must prioritize the abolition of this policy.”
Increasing Payments for Parents of Young Children
Additionally, the DWP is reportedly contemplating increasing child benefit payments for parents of young children instead of exempting them from the cap. Such an enhancement could provide broader support to families during the critical early years of their children’s lives, assisting in covering essential costs and contributing to improved health, educational outcomes, and overall well-being. Campaigners have long advocated for an increase in child benefit. The CPAG claims that despite an impending increase in April, real-term cuts since 2010 necessitate a 25% rise in child benefit to restore its value. The charity estimates that an increase of £20 per week in child benefit could lift 500,000 children out of poverty across the UK.
However, such a move is unlikely to receive Treasury support as it is projected to cost around £10 billion, significantly more than the potential cost of abolishing the two-child benefit. The Resolution Foundation has recently published an analysis indicating that targeted increases in child benefits for young children would substantially reduce child poverty, advocating for a more generous child benefit system to provide a financial safety net for families during the economically challenging years of a child’s life.
Raising the Cap to Three Children
Another proposal suggests raising the cap to three children; however, The Guardian reports that this option is not currently under serious consideration. While this change would extend benefit eligibility to larger families, like the total abolition of the cap, it may not be a practical solution. A recent report by the Resolution Foundation estimated that replacing the two-child limit with a three-child cap, alongside scrapping the overall benefit cap, would cost around £3.2 billion and reduce child poverty by 320,000.
Child Benefit Lock
Furthermore, the government is also contemplating the implementation of a “child benefit lock,” which would ensure that child benefit payments rise annually in accordance with earnings or inflation. This proposal is modeled on the state pension triple lock, which increases the state pension by the rate of inflation, average earnings, or 2.5%, whichever is highest. Save the Children has been advocating for this policy since October 2024, asserting that its introduction could lead to 80,000 fewer children living in poverty by the end of this decade. Meghan Meek-O’Connor, the child poverty policy lead at Save the Children UK, remarked, “The introduction of the pensions triple lock in 2010 marked a significant shift in social security policy, ensuring that pensioners’ incomes were safeguarded. We can, and must, do the same for children.”
