Abolishing the two-child benefit limit would be a great investment

30th May 2025

From a blog at the London School of Economics.

Thirty per cent of children in the UK live in poverty - Nicholas Barr argues that abolishing the Two-Child Benefit limit and overall Benefit Cap is good policy not just for ethical reasons but - less widely realised - because investment in children has a very high payoff and should therefore be a part of the Government's growth agenda.

Under the UK two-child benefit limit a family can claim income-tested benefits only for the first two children in a family. The limit applies for children born after 6 April 2017 with only a few exceptions (multiple births, adoptions, rape).

As a result, each low-income family loses annual benefits of £3,455 per child for any child after the second. The limit impacts nearly 450,000 families - whether or not in work - affecting 1.6 million children. In addition, there is a ceiling (the Benefit Cap) on the total income-tested benefits a family can receive.

A blog by my LSE colleague, Kitty Stewart sets out the Conservative government's reasoning when introducing the two caps and sets out the counterarguments and likely effects of the policy. Here I want to approach the topic on a wider canvas, looking both at cash benefits and benefits in kind and considering some of the evidence from international experience.

The respected Joseph Rowntree Foundation reports that in 2022/23 4.3 million children, i.e. around 30 per cent of all children in the UK, were in poverty of whom, according to their Destitution Report, about one million were in deep poverty, i.e. living in families who did not always have enough food (let alone healthy food) or adequate heating. The Resolution Foundation estimates that if nothing is done, 50 per cent of children will be in poverty by the end of the current parliament.

The same report estimates that ending the two-child limit and benefit cap would remove about 500,000 children from that total, and that extending free school meals to include all families receiving Universal Benefit, the main income-tested benefit, would reduce child poverty by an additional 100,000.

An important missing argument
Most of the advocacy for abolishing the two caps focusses on moral arguments. Many are outraged that in one of the richest countries in the world widespread poverty persists, exemplified by the need for food banks and by the existence of charities such as FareShare and National Energy Action. A more subtle argument is that the purpose of benefits is not only to protect people from poverty but also to provide insurance against an unexpected change in circumstances, for example a family with a comfortable income who chose to have a third child and later faced the death of the main earner.

The core of the argument is that investment in children has a huge payoff, both in economic terms such as higher growth, and in social terms, such as less crime.

Those arguments are, of course, important, but they miss a fundamental second set of reasons for abolishing the two-child limit and benefit cap - the overwhelmingly powerful evidence that early child development is a fantastically good investment.

Note
There is much more to read. If you wish to read the full blog item with links to more information go HERE