UK ministers examine plans to overhaul or scrap two-child benefit cap

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

UK ministers are examining plans to either reform or scrap the two-child benefit cap, amid growing pressure from Labour MPs to jettison one of the most contentious welfare policies of the past decade.

Some senior government figures are pushing a proposal to lift the cap for working families, rewarding households where at least one parent is in employment, according to two people briefed on the matter.

But ministers are also considering full-blown abolition of the cap, which limits the number of children for whom low-income families can claim welfare benefits. Removing it would cost the government about £3.5bn a year.

Maintaining the cap for families with no parent in work would align with a new philosophical mantra being espoused by some senior Labour figures of promoting and rewarding “contribution”.

In a recent paper setting out the “case for contribution”, the influential Labour Together think-tank argued the government “should root itself in an ethic and expectation of contribution: the actions we take that make other people better off”.

Under this approach, “the state would shift focus, towards enabling, rewarding and expecting people to contribute”, wrote Morgan Wild, chief policy adviser at Labour Together.

Paul Ovenden, Prime Minister Sir Keir Starmer’s former director of political strategy who recently resigned, is among the officials to have put forward the proposal to remove the two-child benefit cap for working families only.

In a sign of growing pressure on Starmer, Andy Burnham, the Labour mayor of Greater Manchester who has launched a thinly veiled campaign to replace him, described the cap as “abhorrent”.

Burnham, who called for the cap to be scrapped entirely, said on Thursday that it was “a ridiculous thing that the state is kind of making these sort of judgmental interventions into families’ lives”.

A decision to maintain the two-child limit for families where no parent is in work would likely prompt a strong backlash from many Labour MPs and party members who could argue that it penalises the most disadvantaged children.

Starmer is expected to signal his ambition to reform the contentious policy during the Labour party conference next week.

However, government insiders said the prime minister was unlikely to announce a decision to scrap the cap several weeks out from the Budget on November 26, as markets could respond negatively to an uncosted commitment of that kind.

The Resolution Foundation think-tank has estimated that applying the two-child limit only to out-of-work families would cost an estimated £2.6bn in 2029-2030, and lift 350,000 children out of poverty. About 60 per cent of families affected by the cap have one member in work.

However, the research estimated there would be 120,000 more children in poverty, compared to if the cap were abolished.

The Resolution Foundation cautioned that while lifting the cap for working families would strengthen employment incentives, it would fail to help the most disadvantaged.

A person close to Rachel Reeves said that as chancellor she had spent a lot of money on free school meals and breakfast clubs for children, “so this is an area she cares deeply about”.

They declined to comment on whether the government was considering scrapping the cap for working parents alone.