How much money could families get if Labour scraps two-child benefit cap?

Independent

2 days ago

Scrapping the two-child benefit cap could lift up to 470,000 children out of poverty, according to the latest estimates, by allowing low-income families to claim an extra £3,513 per year in universal credit for every extra child.
After months of firm support for maintaining the limit, Prime Minister Sir Keir Starmer has appeared to leave the door open to the possibility of lifting the limit, put in place by the Conservative government in 2017.
'We'll look at all options of driving down child poverty,' Sir Keir said last week, in response to questions on whether he would scrap it.
It came after mounting pressure from his own MPs and Reform leader Nigel Farage, who committed to scrapping the limit if he were PM.
What is the two-child cap - and who loses out?
There are 1.2 million families with three or more children in the UK and around 370,000 of these are households on universal credit (UC).
Families receiving UC - who are on low or no income - receive an extra £339 each month for their first child born before 2017, and £292.81 for first or second children born after 2017. This amounts to £7,581 per year for families with two children.
But in most cases, parents are unable to claim UC benefits for any further children. There are rare exemptions, for example, in the case of twins, or adopted children.
Most families can still claim general child benefit payments for more than two children, which amounts to £897 per child per year.
But if the government scrapped the two-child benefit cap, families on UC could claim a further £3,513 per year for every extra child. However, there is an upper limit to how much families can claim in benefits with an overall cap of £22,020 a year, or £25,323 for households in London.
How many children would it help lift out of poverty?
The number of children living in poor households has been steadily increasing over the past decade, with 4.5 million children - around 1 in 3 - 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 £14,680.
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).
A further 700,000 children could see their lives improved with the extra cash, their research has found.
Meanwhile, the Resolution Foundation has estimated that around 470,000 children could be taken out of poverty by lifting the cap, or 280,000 if the limit was extended to three children.
Since the Labour government came into power in July last year, some 37,000 more children have been pushed into poverty by the two-child limit, according to CPAG estimates.
'No road to better living standards, economic growth and wider opportunities starts with record child poverty. The policy must go - and sooner rather than later,' said CPAG's CEO Alison Garnham.
Since the cap applies to families receiving UC, the children affected are in low-income households. And 6 in 10 families affected by the two-child limit have at least one parent in work, CPAG found.
What would 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 2029/30, 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 £1.3 bn 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 they 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.