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 new tapered system.
The chancellor and Keir Starmer have both 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.
But 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.
Instead, the Treasury is exploring whether the additional benefits might instead be limited to three or four children – or whether there could be a taper rate introduced so parents would get the most for their first child and less for subsequent children.
Another option under consideration is lifting the cap only for working parents on universal credit, in order to encourage more people into the workforce.
Government sources said they expected Reeves to take action in November’s budget. “If we’re going to do it, we have to lift the cap, not just language.”
Anything other than a full lifting of the limit is likely to spark criticism from child poverty campaigners because of the effect it might have on certain areas or communities.
Raising kids in poverty: The UK’s ‘inhumane’ two child limit
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”.
The prime minister added: “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.”
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Reeves told the Times earlier 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. 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.
But Treasury sources have said those taxes are, in effect, already baked into the Treasury’s calculations about how it can fill an expected £30bn hole in the government’s finances, caused by an expected productivity downgrade by the Office for Budget Responsibility, as well as a series of U-turns on welfare and cuts to the winter fuel allowance.
Dan Paskins, director of UK impact at Save the Children, 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.”
