Since they were given the keys to Downing Street, the new Labour Government has been blighted by the debates over welfare payments. In addition to the recent debacle over the Winter Fuel allowance, back in July, the SNP tabled an amendment to end the so-called two-child benefit cap: a mechanism that denies families with more than two children additional government support. Labour’s party line was to maintain the two-child cap, but some MPs did not concur. Consequently, seven newly-elected Labour MPs had the whip removed for insubordination. In the coming months, the support that is allocated to the most vulnerable will once more be subject to controversy. Chancellor Rachel Reeves faces the prospect of abiding by tight fiscal rules while facing calls to tackle growing societal inequality.
The Labour Government inherited a nation where three in every ten children and 43% of children from families with three or more children are in a state of poverty. Consequently, there has also been a deterioration in children’s health. Twenty-five percent of children under the age of five experience tooth decay. In education, too, the early year’s attainment gap has widened. By providing insufficient support, poverty in the early years of development has evolved into a systemic problem that needs addressing over the course of the next Parliament.
A transformative solution could come from changing the current two-child benefit cap. The cap currently saves the Exchequer approximately £16.95 per week per child. The brainchild of former Chancellor George Osbourne, the cap was designed to suit the austerity agenda and prevent families having children for the purpose of financial gain. In principle, the cap prevents abuses of welfare payments and discourages low-income families expanding beyond their financial means. The reality, as seen earlier, has resulted in a deterioration of the health and wellbeing of the most vulnerable in society, adding to the UK’s stagnating social mobility.
The two-child benefit cap should be abolished and, instead, replaced with three measures that would not only stop facilitating child poverty, but also save the Government money.
First, a significant change was announced in the 2024 Spring Budget, when then Chancellor Jeremy Hunt called the existing regime “confusing and unfair.” The Budget asked for a consultation that aimed to move towards a “household-based system.” This would end an unnecessary loophole that advantaged double-income households and provide extra payments to families that need it the most.
A second measure should be to provide additional financial support for young families. In their 2024 election manifesto, the Liberal Democrats pledged to introduce a ‘toddler top up.’ A similar package is also being offered to voters in the United States, with the Democratic nominee, Kamala Harris, promising a $6,000 tax break for families with newborns. The new Labour Government could emulate these proposals. Giving additional financial support to families with young children would recognise the growing cost of baby formula and childcare. It would also demonstrate to the public that the Government is keen to prevent the next generation entering into a world of disease and destitution: a vision that could become the cornerstone of this Parliament.
Third, means testing Child Benefit should take place differently. Currently, the only means testing that the Benefit undergoes is that, if a parent’s income is higher than £60,000 a year, the parents receiving Child Benefit must pay a High Income Child Benefit Charge. Instead, the Child Benefit system should be based on the existing calculations that distribute maintenance loans for students. Child Benefit would then be distributed as a lump sum in accordance with household income, number and age of children and place of residence. It would require families to submit annual applications that would require approval, but it would tailor the Benefit appropriately, ensuring that welfare payments are appropriated to those who need them most. This would favour lower-income families with more children over middle income families with fewer children, as the current system does.
Prime Minister Keir Starmer has claimed to be willing to take “tough decisions.” This should be one of them.
The new Labour Government faces plenty of challenges; not just from a hotly contested inheritance, but to also keep their enlarged parliamentary party, and the country, on side. Seeking an alternative to the present two-child benefit cap would represent a step in the right direction. Growing up in poverty is a huge inhibitor to educational and employment prospects. By proposing the series of incremental steps outlined above, the Government could demonstrate its commitment to tackling poverty without placing further strain on the public finances. th.
Jamie Tunsley is a Bright Blue member and a Research Assistant for the Royal United Services Institute.