There are good reasons to reverse the two-child limit

It didn’t take long for the first rumblings of discontent to be heard on the Labour backbenches. Within days of the election, a number of MPs are already putting pressure on the new government to end the two-child limit, the rule that means most benefit recipients don’t get any extra money for third and subsequent children. While the Liberal Democrats and Greens went into the election pledging to abolish the limit, Labour has said it will do so only when fiscal conditions allow.

It has spent much of the past couple of weeks emphasising the fact that fiscal conditions are very tough indeed. And with good reason. When Rachel Reeves’ public spending audit is published, perhaps this week, no doubt we will be told more about the challenges. Not that we should have been in any doubt about them. Waiting lists, overflowing prisons, a crumbling justice system, overwhelmed local authorities, all have been well-documented by independent observers.

Therein lies the eternal problem facing governments. How to prioritise within limited resources. Ask the Scots. One of the reasons they are really struggling with funding their public services is that they have decided to be much more generous in their benefit payments to poor families with children.

The long-term cost of reversing the two-child limit would be about £3.4 billion a year. That is not a trivial amount of money, but nor is it huge. It is equal to roughly 3 per cent of the total working-age benefit budget. Merely managing to slow down the increase in spending on disability benefits could pay for it. It is less than a fifth of the cost of recent cuts to national insurance contributions. If reversing it were a top priority, it would be affordable. The trouble is there are a lot of top priorities.

So what actually is it? And what is its effect? Low-income families typically receive an additional £3,455 a year of universal credit for each child they have. Historically, the welfare system has always paid an amount for each child, but the two-child limit means that claimants do not receive an additional amount for third or subsequent children born after April 5, 2017.

For those of us not directly affected by the system, it is worth illustrating the effect with an example. Take a lone parent with three children. Let’s ignore their housing costs and assume that those are covered by benefits, although often that is not the case. In the absence of the two-child limit, this family of four would have about £350 a week to live on. The two-child limit reduces that to about £283 a week. That is the difference between an income that takes them just above the official poverty line to one that takes them below it.

That is why the two-child limit has been pretty much laser-focused on increasing the measured rate of child poverty. While relative poverty rates have actually declined somewhat for families with one or two children since 2015, they have increased for families with three or more children.

One thing that I like to try to get across in these columns is the extent to which decisions on benefits affect more people than many of us might imagine. Don’t forget that more than one family in four will be entitled to universal credit at any one time. When fully rolled out, the two-child limit will affect about one in ten of all families with children and about one in five children. That is nearly three million children living in households whose income will be less than it would have been in the absence of this policy. More than two in five children living in families of Bangladeshi or Pakistani heritage will be affected. Not all will see the scale of loss in the illustration above because, remember, the majority of those affected will be in a working family, but the effects will be bigger in bigger families.

Doing nothing is an active decision in itself. The policy is not yet, by any means, fully rolled out. It affects only families where the youngest child was born after April 5, 2017, so at the moment it can’t affect any family whose children are all over the age of seven. Taking no action will result in a big increase in the number of families and the number of children affected. That’s about 670,000 more children by the end of the parliament, according to estimates from my colleagues at the Institute for Fiscal Studies.

Somewhat surprisingly amid all the furore over this, there is another dog that hasn’t barked. The two-child limit itself would be even more targeted at the poorest households if it were not for a separate policy: the benefit cap. This limits the total amount that a family with no adults in work can claim. That mostly affects bigger families and more than another 100,000 of them would be affected by the two-child limit if their benefits were not already capped by this separate limit. Nevertheless, simply removing the two-child limit would, by itself, reduce relative child poverty by approximately half a million. Per pound spent, that would be well-targeted at reducing child poverty, a fact that will not be lost on the newly formed child poverty task force.

There are arguments, beyond cost, that point in the other direction. The most powerful, and the one that seems to cut through, is about a different form of fairness. If middle-income people have to make financial trade-offs and sacrifices when it comes to deciding how many children to have, is it really fair to have an open-ended commitment to poorer families who decide to have more children? Maybe, maybe not. The consequences of this decision, though, will be with us for a long time. Growing up in poverty can scar for life.

This article was first published in The Times, and is reproduced here with kind permission.