Two-child limit mitigation in Scotland would help larger poor families but policy design could harm work incentives

15th March 2025

Mitigating the two-child limit policy would be an effective way to reduce child poverty, but designing an effective policy is not straightforward.

5.6 million families in Great Britain receive universal credit (UC), the primary benefit supporting the incomes of working-age families (Department for Work & Pensions, 2025). The maximum amount of UC that a family can be entitled to depends on a number of factors, such as whether the claimant is a single adult or a couple, the number of dependent children they have and their rental costs. If a member of the family works, then this maximum amount is tapered away at a rate of 55% (beyond a disregard) - meaning that for each additional pound of (after-tax) earnings, the amount of UC that the family receives is reduced by 55p. Hence, as a family's earnings increase, the amount of UC they receive falls smoothly until their entitlement reaches zero.

A key component in determining the maximum UC entitlement (and hence the final amount received) is the ‘child element', currently worth £3,455 per year for each child in the family. However, children born on or after 6 April 2017 who are the third or subsequent child in the family do not (aside from some exemptions) generate an extra child element - a policy known as the ‘two-child limit'. As of April 2024, there were 440,000 families affected by the policy, including 27,000 families in Scotland (Department for Work & Pensions and HM Revenue & Customs, 2024). In its Budget for 2025-26, the Scottish Government announced a policy to mitigate, as far as possible, the impacts of the two-child limit (Scottish Government, 2024b) from 2026–27 at the latest. Not much more is currently known about how this policy will be implemented. Some cooperation between the Scottish Government and the Department for Work & Pensions (DWP), which administers UC, will be necessary.

Read the full article from Institute for Fiscal Studies