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Scrapping two-child limit on Universal Credit will save 500,000 children from poverty

Scrapping two-child limit on Universal Credit will save 500,000 children from poverty
Samantha Partington
Written By:
Samantha Partington
Posted:
17/06/2024
Updated:
17/06/2024

Removing the controversial Universal Credit two-child limit would pull half a million children, born into the UK’s poorest families, out of poverty.

Low-income families typically receive an extra £3,455 per year of Universal Credit for each child. But the two-child limit means families cannot claim the benefit for a third or subsequent children born after 5 April 2017.

Over three-quarters (76%) of families affected by the cap on additional child tax credit fell within the poorest 30% of working-age households, according to analysis from the Institute for Fiscal Studies (IFS).

The impact of the child cap, which currently affects around two million children, will continue to worsen, says the IFS. As more children are born after April 2017, a greater number of families risk falling into poverty.

By the end of the next Parliament, forecasts show that an extra 675,000 children will be affected.

Half of the families who find themselves financially worse off because of the policy are from single-parent homes.

Furthermore, the effects of the cap are felt in varying degrees across families of different ethnicities.

The IFS estimates that 43% of children in households with one adult of Bangladeshi or Pakistani origin would be affected by the policy when families are no longer in receipt of additional benefits because a third child was born before April 2017.

This compares to 17% of children in other households.

Lib Dems and Green have pledged to scrap limit

Both the Liberal Democrats and Green Party have pledged to scrap the limit in their election manifestos. Labour, meanwhile, have said they will abolish the policy “when fiscal conditions allow”, but the commitment is absent from their manifesto.

The cost to remove the two-child limit is estimated to run to £3.4bn per year, which is equal to roughly 3% of the total working-age benefit budget or the cost of freezing fuel duties for the next Parliament.

Eduin Latimer, a research economist at IFS, said: “The two-child limit is one of the most significant welfare cuts since 2010 and, unlike many of those cuts, it becomes more important each year as it is rolled out to more families.

“It has a particularly big impact on the number of children in poverty for two reasons: it mostly affects poorer households and, by definition, its effects are entirely concentrated in families with at least three children.”

Mubin Haq, chief executive of abrdn Financial Fairness Trust, funder of the report, said: “If the next Government is serious about tackling child poverty, it will need to review the two-child limit. There is an inherent unfairness in the policy, as it affects only those children born after 5 April 2017. The majority of families affected are in work or have caring responsibilities for disabled relatives or young children.”