Scrapping 2-child benefit cap cost-effective to cut poverty

This comes ahead of a Budget in which the Chancellor is widely expected to announce changes to the limit.

The Institute for Fiscal Studies (IFS) also laid out ways Rachel Reeves could partially reverse the cap to avoid the cost of fully removing it and noted the Government could prioritise boosting certain groups.

She has faced increasing calls to lift the cap, which was introduced under the Conservatives in 2017 and restricts the universal or child tax credit to the first two children in most households.

A full reversal would cost around £3.6 billion and lift some 630,000 children out of poverty, the IFS estimates.

Exempting working families from the limit would reduce the bill to £2.6 billion and reduce child poverty by 410,000.

A payment for third and subsequent children at half the rate paid for the first two would cost around £1.8 billion.

An important clarification – pls share.

There is NO two child cap on Child Benefit

I’ve had questions, as many media outlets write confusing statements or use ‘child benefit’ as shorthand. The two-child cap is not about Child Benefit, it is about benefits (eg Universal Credit… pic.twitter.com/GetLvdreek

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— Martin Lewis (@MartinSLewis) July 23, 2024

Tom Wernham, a senior research economist at the IFS, said: “Reversing the two-child limit is one of the most cost-effective options the Government has to achieve a quick reduction in child poverty.

“There are ways to partially undo the policy that would cost less than the full £3.6 billion needed for its full removal.”

He said the Government must ultimately decide who it wants to help and what it wants the benefit system to do.

“It could target support on the youngest children, or strengthen work incentives by lifting the limit for families in work, or spread the extra cash more thinly but across a wider group,” he said.

“None of these options would be as costly as full reversal, but nor would they do as much to reduce poverty.”

It comes as part of the IFS’s annual “green budget”, setting out the challenges facing the Chancellor ahead of the Budget each year.

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A Government spokesperson said: “Every child, no matter their background, deserves the best start in life.

“That’s why our Child Poverty Taskforce will publish an ambitious strategy to tackle the structural and root causes of child poverty.

“We are investing £500 million 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 £1 billion crisis support package.”

The strategy is expected to be published this autumn.