The upcoming budget will set out the government’s economic agenda for the next year and could end one of its longest running headaches.
Newly elected deputy leader of the Labour Party, MP Lucy Powell has called for the removal of the two-child benefit cap, which prevents parents from claiming child tax credit or universal credit on their third or subsequent children. She has told journalists that the government’s “objective is to lift children out of poverty, and that will mean we need to lift the cap.”
This is the latest in a series of complaints about the cap by Labour MPs, since the government took office last July. In response to a report on the policy by economic thinktank The Resolution Foundation, many Labour MPs have signed a letter which described the cap as “one of the most significant drivers of child poverty in Britain today.” Chancellor Rachel Reeves is scheduled to announce the government’s future economic plans in the budget on November 26th, with the government’s child poverty strategy also set to be announced before the end of this month. The tone adopted by the chancellor during her pre-budget speech on November 4th however, seemed to suggest that Labour would prioritise contractionary measures such as tax rises and spending cuts, over expansionary policies such as an extension of any benefits.
The two-child benefit cap was introduced in April 2017, with the stated intention of ensuring “that families in receipt of benefits faced the same financial choices about having children as those supporting themselves solely in work.” The Labour Party, then led by Jeremy Corbyn, initially opposed the policy, and Keir Starmer himself pledged to lift the cap while campaigning to be elected Labour leader in 2020. The Labour leadership announced their support for the cap in July 2023 and campaigned in favour of it at last year’s general election.
The Resolution Foundation’s most recent report on the impacts of the cap was published on October 30th. It estimated that the cap reduced benefit spending by an average of £3,500 per otherwise eligible family per year, and reduced government spending by roughly £3.5 billion per year. The report also suggested that removing the cap would immediately lift 330,000 children out of poverty, with a further 150,000 being lifted out of poverty over the subsequent 5-year period, based on economic growth forecasts. The government has previously stated that it would be willing to lift the cap “when economic conditions allow” but has given no indication of what these conditions may be in practice.
Since its introduction, the cap has been widely criticised for its social implications, as well as its direct economic consequences. It was described as “almost a form of eugenics” by Professor of Epidemiology and Public Health Sir Michael Marmot, in 2017. Eugenics refersto “The study of how to arrange reproduction within a human population to increase the occurrence of heritable characteristics regarded as desirable” (Oxford English dictionary). This pseudo-science became widespread across Europe and the USA during the late 19thcentury and was used to justify restrictions of the rights of ethnic minorities during the 20thcentury.
The two-child benefit cap can be interpreted as a form of eugenics if it is viewed as a means of reducing the birth rate among poorer people, in an attempt to alter the social make-up of society. This takes on even more troubling implications when analysed alongside data from the government’s annual family resources survey. This shows that Black and Asian children living in the UK are over twice as likely to grow up in poverty as their white counterparts.
The cap has also been compared to Malthusian policies, aimed at improving a country’s average living standards, by lowering its population. Malthus argued that a consistently rising population, especially among the working class, would inevitably drain a country’s resources to the point of economic collapse. The only way of protecting a country’s common pool resources, such as government spending, was, in Malthus’ opinion, to limit the rate at which poorer people were able to have children. While this has never been the stated aim of any government, the reality is that policies that restrict universal credit payments to parents of multiple children will render some of the poorest families financially unable to have more children.
In 2022, health and social care thinktank The Nuffield Trust estimated that the number of families having third or subsequent children had fallen by 5% since the introduction of the two-child benefit cap. The same report estimated that the UK’s overall birth rate had fallen by 1% over the same period. It is however impossible to say to what extent this was caused by behavioural responses to the cap, rather than other national economic and social conditions.
Similarly, a House of Commons report published in February 2024 on the impacts of the two-child benefit cap stated that the “fertility rate among larger families (… had) not decreased significantly in the years from 2017.” This further suggests that the social impacts of the cap have been negligible, and indistinguishable from those of other social and economic trends.
The Population Health Monitoring Group only started stratifying their annual birth rate figures by social class in 2023. This survey saw little change in the birth rates among the lowest social classes between 2023 and 2024.
The Chancellor asserted in her pre-budget speech that the “world has thrown more challenges our way” and that “we will all have to contribute” to efforts to reduce government debt. This does not seem to indicate that the government in willing to raise spending on Universal Credit by the estimated £3.5 billion that The Resolution Foundation believes would be required by the removal of the Child benefit cap. Despite this the vocal opposition to the cap from both Powell and Education Secretary Bridget Phillipson, suggests that senior figures within Labour are growing increasingly impatient with the government over this issue.
The Resolution Foundation maintains that a complete removal of the cap will prove more cost effective than potential compromises such as three-child benefit cap or restricting the cap so that it only applies to families in work. These both remain possible policies however, and alternatives to Reform UK’s policy of scrapping the cap should they win the next general election, and the Conservative Party’s commitment to maintaining it. Whether any changes are made to the two-child benefit cap during or immediately after the budget, could determine both how united The Labour Party is going forward, and define this government’s economic and social legacies.
