The two-child limit restricts benefit payments for many low-income families, denying them additional support for a third or subsequent child.
The policy has been a focal point of political contention, with Chancellor Rachel Reeves suggesting potential revisions in the upcoming Budget.
This raises key questions: How does the current system operate, and what changes are plausible?
Implemented by Conservative Chancellor George Osborne, the policy limits Universal Credit or tax credit claims to the first two children in a family.
This restriction applies to third or subsequent children born after April 6, 2017.
Approximately 1.6 million children reside in larger families affected by this policy, rendering them ineligible for these means-tested benefits.
The Institute for Fiscal Studies (IFS) estimates that if the cap were removed, affected families could receive an average of £4,400 annually in additional benefits, representing roughly 10% of their disposable income.
The IFS further projects that the policy will ultimately save the Treasury approximately £3.6 billion per year.
It is important to note that the two-child limit does not affect child benefit payments, a common misconception.
The policy specifically targets Universal Credit and tax credits, not child benefit.
Under the current system, families receiving Universal Credit or tax credits generally will not receive additional benefits for a third or subsequent child born after April 6, 2017.
However, families with four children, all born before that date, will continue to receive additional payments for children under 16, or young people under 20 in full-time education or training.
Specific exemptions to the policy exist.
For example, if a parent or parents have one child and subsequently have twins or triplets, claims can be made for all of the children.
Furthermore, claims can be made for children conceived as a result of rape or coercive relationships. Payments can also be allocated to adopted children, children in informal care arrangements, or children of the claimant’s child.
Over 100 charities have jointly appealed to the Chancellor to abolish the two-child limit.
Numerous Labour backbenchers also advocate for its removal, arguing that doing so would alleviate poverty for hundreds of thousands of children.
However, abolishing the cap would create a significant fiscal gap. Addressing this would likely require spending cuts in other areas, tax increases, or increased government borrowing.
The Conservative party defends the policy, asserting that it promotes fairness by aligning the financial considerations of benefit recipients with those of working parents.
The Chancellor has hinted at potential modifications, stating in an interview with the BBC that it is unjust for children in larger families to be “penalized” through “no fault of their own.”
Options beyond complete abolition are available.
For instance, the benefit could be universally applied, albeit at a reduced rate.
Alternatively, the Chancellor could implement a tiered payment system, offering progressively smaller amounts for each additional child, reflecting potential economies of scale in childcare.
Another option involves raising the cap to include a larger number of children.
Chancellor Rachel Reeves is weighing both tax increases and spending cuts in the upcoming November 26 Budget.
Some experts believe the government may be forced to break its pledge not to raise income tax, national insurance, or VAT for working individuals.
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