Removing the two-child benefit cap is not a ‘silver bullet’ to tackle poverty and will instead fail to help some of the poorest households, Rachel Reeves has warned.
The Institute for Fiscal Studies (IFS) said the move would cost £2.5billion annually and lift around 540,000 children out of poverty – at an average cost of £4,500 per child.
But the report, published today, warns that the cash boost will be partially or completely wasted on the poorest 70,000 households.
This is because it will cause them to be affected by the separate household benefit cap, which limits the overall amount of handouts that non-working parents can claim.
Highlighting how the welfare system can encourage people to stay on benefits, the report found that only 200,000 to 350,000 children would be lifted out of poverty if more parents got into work and the government met its target of increasing the employment rate to 80 percent. Now it’s about 75 percent.
Rachel Reeves has warned that scrapping the two-child benefit cap would cost her £2.5billion a year.
The two-child cap, announced in 2015 by the Tories, prevents parents from claiming child tax credit or universal credit for a third or subsequent child born after April 2017 (file image)
Eliminating the household cap of two children would lift one child out of poverty, but reduce the depth of poverty for beneficiaries. It will cost less – around £800 million.
The Chancellor is under pressure from his own backbenchers and some opposition MPs to lift the cap on the two-child benefit ahead of the first budget on October 30.
More than 100 MPs from all parties signed a Commons motion calling for the cap to be lifted earlier this year.
Over the summer, Reeves said he wouldn’t put a cap on it, saying he couldn’t make any promises without saying where the money would come from.
However, after a huge backlash after cutting 10 million pensioners their winter fuel payments, they will face pressure to deliver on their welfare spending bid.
The two-child cap, announced in 2015 by the Tories, prevents parents from claiming child tax credit or universal credit for a third or subsequent child born after April 2017.
Advocates say it’s unfair for taxpayers to subsidize parents with large families who can’t support themselves.
However, critics say the move is driving child poverty.
Over the summer, Ms Reeves said she would not limit the limit, saying she could not make any promises without saying where the money would come from.
The rate of ‘relative’ child poverty rose from 27 per cent to 30 per cent between 2010/11 and 2022/23 – an increase of 730,000.
The IFS report said the rise was driven by families with three or more children, with half of children in poverty now coming from such families.
The ‘relative’ measure of poverty relates to people living in households with incomes below 60 percent of the median in a given year.
According to the Office for National Statistics, the average disposable household income in the UK last year was £34,500.
The author of the IFS report, Anna Henry, said: ‘The increase in child poverty measured today is driven by higher levels of poverty among families with three or more children.
‘Scrapping the limit of two children would be a cost-effective way to reduce child poverty, at a lower cost per child lifted out of poverty than all other obvious changes to the benefit system, but not a silver bullet.
‘Removing the two-child limit would ultimately cost the government a significant amount, around £2.5 billion a year.
‘It will do nothing for households affected by the household benefit cap, who are among the poorest.
‘In fact, removing the limit of two children will lead to 70,000 more households affected by the cap on household benefits, wiping out some or all of the effects for that household.’
