Government must scrap the two-child limit to avoid child poverty hitting an all-time high

The Government’s upcoming Child Poverty Strategy won’t be credible without a commitment to scrap the two-child limit, as child poverty would otherwise remain on course to rise over the Parliament. But an ambitious strategy has the potential to get child poverty rates down to their lowest level in 40 years, according to new research published today (Wednesday) by the Resolution Foundation.

The report warns that the roll-out of £3 billion of previously announced benefit cuts will contribute to an increase in child poverty rates from a projected 31 per cent at the start of the Parliament (2024-25), to 33 per cent by the end (2029-30), meaning the number of children below the poverty line would rise to an all-time high of 4.6 million.

If the Government’s wider goals to boost employment and reduce housing costs are successful, for example by further increasing parental employment by 160,000 and keeping down private rents, the report finds that 130,000 children would be lifted out of poverty.

This welcome scenario would also boost the Treasury coffers by £2 billion but would not be enough to achieve falling child poverty rates over the Parliament. Furthermore, there are real limits on how much an employment strategy will help to reduce child poverty, as over seven-in-ten families in poverty already have someone in work.

Ending the two-child limit and the benefit cap would have a far bigger impact, lifting 500,000 children out of poverty by the end of the Parliament at a cost of £4.5 billion. With the policy costing around £10,000 for every child lifted out of poverty, this is by far the most effectively targeted route to reducing child poverty, says the Foundation. An interim policy of scaling the policy back to a three-child limit (while also scrapping the benefit cap) would cost around £3 billion, but lower the child poverty reduction to 320,000.

But while these policies are the bare minimum required for a credible strategy, further action could bring down child poverty even further.

Extending free school meals to all families receiving Universal Credit – at a cost of £1.2 billion – would lift a further 100,000 children out of poverty. This should be a priority for the upcoming Spending Review.

Restoring and boosting the family element of Universal Credit – a payment worth up to £800 by 2029-30 – and re-linking Local Housing Allowance to local rents would lift another 140,000 children out of poverty, at a cost of around £3 billion.

Together this package of reforms would lift around 900,000 children out of poverty by the end of the Parliament, reducing the total to 3.7 million, and cutting the child poverty rate down to 27 per cent – the lowest level since the 1980s (and slightly lower than the 2011-12 and 2020-21 rates).

The Foundation notes that such an ambitious package would have a price tag of around £8.5 billion, falling to £5.5 billion if the extension of free school meals is funded within existing departmental budgets and the Government can succeed in raising employment and building more homes.

While this is challenging in the current fiscal circumstances, the Foundation notes that such a package would be comparable in scale to the Scottish Government’s child poverty efforts, and cost far less than the roughly £40 billion a year boost to family support under the last Labour administration. The Government should therefore be prepared to make some difficult tax and spending trade-offs if it wants its Child Poverty Strategy to be a success.

Adam Corlett, Principal Economist at the Resolution Foundation, said:

“With a record 4.6 million children set to fall below the poverty line by the end of this Parliament, the Government is right to be formulating a new strategy to combat this scourge of modern Britain.

“However, a credible new strategy will need more than warm words. A Government that is serious about reducing child poverty will need to undo some of the policies announced by previous governments, such as scrapping the two-child limit. The upcoming Spending Review should also look to extend free school meals to more families.

“An ambitious strategy could support around 900,000 children out of poverty by the end of the decade. And while the cost of this action may seem daunting, the cost of inaction is far greater and could leave the Government with an embarrassing record of rising child poverty.”