Keir Starmer and Rachel Reeves last week dropped very strong hints that the widely-criticised two-child limit – the policy introduced under the Cameron-Osborne government that caps the level of social security support paid to families with more than two children – will be abolished in full at the upcoming Budget. Appearing to contradict previous anonymous briefings that had suggested the Chancellor would opt to ameliorate rather than abolish the two-child limit by replacing it with a tapered system or exempting working families, Reeves struck a more unequivocal tone, telling BBC Radio 5 Live: ‘I don’t think that it’s right that a child is penalised because they are in a bigger family, through no fault of their own.’
This is a very encouraging sign. The half-measures that had been mooted would be totally inadequate for the task of tackling child poverty. Recent analysis from the Resolution Foundation shows that options for partially repealing the policy would have left the government still overseeing a rise in child poverty across the course of the Parliament.[1] The Institute for Fiscal Studies showed that alternatives to full abolition would still leave hundreds of thousands more children trapped in poverty than scrapping the policy entirely.[2] Earlier last week Z2K joined over 100 organisations across civil society to call on the government to scrap the two-child limit in full.[3]
But while fully abolishing will lead to a major improvement in the living standards of hundreds of thousands of children, significant numbers of children in larger families living in some of the deepest poverty will see no benefits from its abolition. That’s because of a separate policy that restricts social security support for some families – the household benefit cap.
The benefit cap traps families in deep poverty
Like the two-child limit, the benefit cap was introduced under the 2010-2016 Cameron-Osborne government. The benefit cap sets an absolute limit on the total amount of benefits that can be paid to any one household, regardless of the number of children they have or the level of housing costs they have to pay. Benefit levels are already unusually low compared to other OECD countries, but there is at least some sense that these rates are linked to the needs of the people they are supporting. The benefit cap, by contrast, is completely arbitrary.
The benefit cap has been widely criticised for pushing families into deep poverty and homelessness. Analysis by Child Poverty Action Group shows that a typical lone parent with three children living in London who was affected by the benefit cap would have only £3 a week to live on after rent.[4] Studies have also shown that alongside the huge financial impact, being subject to the benefit cap has serious implications for the health and wellbeing of parents and children.[5] The level of the cap has been frozen since 2023.
The evidence shows that outside of producing very harmful effects on affected families, the benefit cap serves little other purpose. The DWP’s own analysis found that the vast majority of households who are subject to the benefit cap do not move into work as a result.[6] Research from the London School of Economics showed that very few families move to cheaper accommodation as a result of the cap because of the lack of affordable rented accommodation.[7] The benefit cap does not even save the public purse much money. Analysis from the Institute for Fiscal Studies shows that by 2029/30, total savings from the benefit cap will only have climbed to £500 million per year.[8]
140,000 children in large families will see no benefit from scrapping the two-child limit
Child Poverty Action Group has called the benefit cap the ‘evil twin’ of the two-child limit. One reason for this is that the two policies significantly overlap. Analysis by the Larger Families project shows that around 140,000 children are affected by both the benefit cap and the two-child limit – and this is projected to increase to 200,000 by the end of 2029/30.[9] None of these children will see any benefit at all if the two-child limit is abolished but the benefit cap is retained, as the below example makes clear.
Maryam’s story
Maryam is a lone parent of three young children who has recently fled from her abusive husband with her children. Her husband was the sole earner in her household, so Maryam has had to apply for universal credit. She has moved into the cheapest available rental property she was able to find within a reasonable distance of her children’s school. She lives in London and her rent is £2000/month.
Maryam is affected by both the two-child limit and the benefit cap. The benefit cap for a single parent inside Greater London is £2110/month. This means that, after rent, Maryam only has £25/week for her and her children to live on. This has plunged Maryam into severe destitution, and she has only been able to survive by borrowing large sums of money from friends and family.
If the two-child limit were lifted on its own, Maryam’s income would not change at all and she and her children would remain in destitution. However, if both the benefit cap and the two-child limit were lifted, Maryam would receive enough money to feed all of her children while also being able to pay rent. Although money would still be tight, this would alleviate the deep poverty Maryam is facing.
Some larger families are also facing homelessness as a result of the benefit cap. Analysis from Crisis found a positive correlation between local homelessness acceptances and the number of households affected by the benefit cap, suggesting that the cap increases levels of homelessness.[1] Larger families at risk of homelessness who are affected by both the two-child limit and benefit cap would see no boost to their income from the abolition of the two-child limit alone.
Ahmad and Khadija’s story
Ahmad and Khadija are refugees who have recently come to the UK and been rehoused via the Afghan Resettlement Programme. Ahmad has been trying to find a job and has signed up with multiple specialist employment schemes but has so far not had any luck securing work.
The couple’s universal credit entitlement is already restricted for their youngest two children by the two-child limit. However, the more significant restriction is the benefit cap. As a result of the cap, Ahmad and Khadija’s total combined income is restricted to the Greater London cap amount of £2110.25/month. Ahmad and Khadija live in a housing association tenancy where the rent is £1000/month. Their universal credit income is further reduced by other deductions, leaving them with just over £900/month for the whole family to live on after rent.
As a result of the cap, Ahmad and Khadija quickly found themselves unable to both feed their children and pay their rent. This quickly led to them accruing a significant amount of rent arrears. As a result, their landlord initiated court proceedings for eviction, which are still pending. Because their income is so low, they’ve been unable to negotiate a repayment plan, and the family is facing being made homeless.
If only the two-child limit were lifted, Ahmad and Khadija would continue to face the benefit cap and their income would remain the same. They would not be in any better position to repay their rent arrears and would still be at high risk of homelessness. But if the benefit cap were also lifted, they would be lifted out of deep poverty and would be able to afford paying their rent.
The benefit cap must be abolished alongside the two-child limit
Analysis by the Institute for Fiscal Studies finds that the benefit cap ‘significantly dampens’ the impact that removing the two-child limit would have on child poverty rates. Abolishing the two-child limit alone would lift 80,000 fewer children out of poverty than abolishing both policies together.
Retaining the benefit cap would not only stop 140,000 children from seeing any benefits from the abolition of the two-child limit – it would also mean that a further 70,000 households with children would end up being affected by the cap.[1] While these households would see some improvement to their income, this would be limited by the cap and would mean some families only seeing a minimal increase.
The case for abolishing the benefit cap is clear. It traps families in deep poverty, causes homelessness and damages families’ health. Like the two-child limit, it severs the link between need and support that forms the basis of our social security system. Scrapping the two-child limit would be a crucial step towards repairing our threadbare safety net – abolishing the benefit cap alongside would reinforce that. It’s hard to put it better than Rachel Reeves herself put it in her 5 Live interview: ‘in the end, a child should not be penalised because their parents don’t have very much money.’
[1] No half measures • Resolution Foundation
[2] Options for reforming the two-child limit | Institute for Fiscal Studies
[3] Letter warning government against ‘half-measures’ on two-child limit | CPAG
[4] Raising three kids on £3 a week: The reality of the benefit cap | CPAG
[5] https://largerfamilies.study/publications/needs-and-entitlements/
[6] Evaluation of the lower benefit cap – GOV.UK
[7] Capped in Crisis: Benefit cap and unaffordable rents leave families facing destitution – LSE
[8] Child poverty: trends and policy options | Institute for Fiscal Studies
[9] https://largerfamilies.study/publications/colliding-caps/
[10] Making welfare work | Crisis UK
[11] Abolishing the two-child limit would be a cost-effective way of reducing child poverty but is no silver bullet | Institute for Fiscal Studies
