All the ways DWP could change the two-child benefit cap

The Government is actively considering reforming the two-child benefit cap to reduce its impact on children in poverty, according to reports.

Charities, campaigners, and even some Labour MPs have long called for the cap to be abolished. The Child Poverty Action Group (CPAG) suggests that doing so could lift 250,000 children out of poverty overnight and improve the circumstances of a further 850,000.

Ministers have resisted these calls, however, as it is estimated that removing the cap could cost the Treasury billions each year. Analysis by the Institute of Fiscal Studies (IFS) suggests the annual price tag could be upwards of £3.6bn, while the CPAG puts the figure at £1.7bn.

Feelings about the cap are so strong in some parts of the Labour Party that seven MPs were willing to lose the party whip in July 2024 to vote in favour of an amendment calling for its scrapping.

There is speculation the party could face a new rebellion over the matter, with multiple Labour MPs telling The i Paper that support for scrapping the cap entirely is widespread and an issue that unites different groups within the parliamentary party.

It is understood that MPs may be more likely to speak up on the issue if the Government’s long-promised strategy to reduce child poverty does not include a clear plan to scrap the cap.

With the Treasury highly unlikely to approve abolishing it any time soon, the Department of Work and Pensions (DWP) is said to be exploring other options for how they can mitigate the impact of the policy.

According to The Guardian, one prominent proposal under consideration is to exempt parents with children under the age of five from the cap.

It has been suggested that this approach would focus on providing financial relief during the critical early years of child development and help with heightened expenses families face during this period.

An insider told the paper: “Officials are keen to mitigate the impact of the cap, if not lift it entirely. They have been discussing a range of options to do so, but at the moment, helping parents of under-fives seems to be one of the most likely.”

This approach is supported by a recent analysis from the Fabian Society, which indicates that 1.2 million children aged up to four are living in households earning less than 60 per cent of the median income after housing costs, with nearly half of these children in “deep poverty,” subsisting on less than 40 per cent of the median income.

A spokesperson for the DWP said: “We do not comment on speculation. Our ministerial taskforce is exploring all available levers across government to give every child the best start in life.”

Another option being discussed is to exempt parents of disabled children from the two-child limit.

There is evidence that this could have major implications for affected families. Research published in 2024 by the End Child Poverty Coalition (ECPC) suggested that the two-child limit disproportionately affects families with at least one disabled child.

It found that approximately 20 per cent of households impacted by the cap include a disabled child, affecting around 87,500 such families.

The CPAG has also suggested that households that include a disabled person are often more greatly impacted by the two-child benefit cap.

“On average, disabled people have lower incomes than non-disabled people and they often incur additional costs related to their disability,” the charity said in a 2024 report.

“Typically, households with disabled people spend a greater share of their income on energy and food. For these reasons, these households are particularly vulnerable to being pushed into deep poverty as a result of the two-child limit.”

Exempting parents who are employed is also said to be on the table, with the hope that such a policy could encourage employment among parents.

Critics of the current cap argue that it disproportionately affects low-income working families who rely on benefits to supplement their wages.

Data published by the ECPC in 2024 highlighted the scale of the issue, with the charity finding that 81 per cent of two-parent families affected by the limit have at least one working parent.

Joseph Howes, chair of the group, said at the time: “The two-child limit is a failed policy that drives families, the majority of whom are already working, into poverty. Any credible plan to reduce child poverty will need to make scrapping the policy its number one priority.”

Additionally, the DWP is reportedly considering increasing child benefit payments for parents of young children rather than exempting them from the cap.

Enhancing these payments could provide broader support to families during the formative years of their children’s lives, helping to cover essential costs and contribute to better outcomes in health, education, and overall well-being.

Campaigners have long been calling for child benefit to be boosted. The CPAG claims that, even though child benefit is set to increase in April, real-term cuts since 2010 mean child benefit needs to rise by 25 per cent to restore its value.

The charity also estimates that increasing child benefit by £20 a week would pull 500,000 children out of poverty across the UK.

However, the Treasury is unlikely to consider this move as it is forecast to cost £10bn—significantly more than scrapping the two-child benefit.

The Resolution Foundation recently published an analysis showing that targeted increases in child benefits for young children would significantly reduce child poverty.

The think tank argues that a more generous child benefit system would provide a financial cushion to families during the most economically demanding years of a child’s life.

A separate proposal to raise the cap to three children has been mentioned; however, The Guardian claims it is not under serious consideration at this time.

This option would have expanded benefit eligibility to larger families but, like scrapping the cap altogether, may not be very feasible.

A recent report by the Resolution Foundation estimated that replacing the two-child limit with a three-child cap, combined with scrapping the overall benefit cap, would cost around £3.2bn and reduce child poverty by 320,000.

The government is also exploring the introduction of a “child benefit lock,” which would ensure that child benefit payments increase annually in line with earnings or inflation.

This would be modelled on the state pension triple lock, which increases the state pension by the rate of inflation, average earnings or 2.5 per cent —whichever is highest.

This is something that the Save the Children charity called for in October 2024 when it claimed in a report that the policy could result in 80,000 fewer children living in poverty at the end of this decade

Meghan Meek-O’Connor, the child poverty policy lead at Save the Children UK, said at the time: “The introduction of the pensions triple lock in 2010 was a pivotal moment in social security policy, ensuring that pensioners’ incomes were protected. We can, and should, do the same for children.”