The 'two-child limit' debate

Good morning from New Economy Brief.

A punitive social security policy introduced by the DWP in 2017 has been in the news this week after Keir Starmer announced that Labour would not repeal the ‘two-child limit’ over the weekend. 

It’s caused a row at all levels of the Labour Party, including in the Shadow Cabinet. New research this week has found strong evidence that the policy fails on its own terms and only serves to increase child poverty.

This week’s New Economy Brief analyses the policy at the heart of the row, and outlines  why many are pushing for its abolition.
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Labour row over the two-child limit. Over the weekend Keir Starmer confirmed that a Labour government would keep the two-child limit in Universal Credit and child tax credits, which removes support for third and subsequent children born after April 2017. Senior Labour figures have previously attacked the policy in public and a broad coalition of civil society organisations, such as Save the Children, Barnardos, the NSPCC and others, have signed an open letter to party leaders opposing the policy. This has sparked a fresh row within Labour, as the Leadership is keen to show its commitment to fiscal responsibility, but Labour MPs with constituents in more deprived areas may find the policy difficult to defend.

• History and background. The two-child limit was introduced as part of the Conservative government’s efforts to reduce spending on social security. The two-child limit prevents families from receiving additional income for their third or subsequent children (worth up to £3,235 a year per child in 2023/24), affecting 1.5 million children in April 2023 (10% of all children, this includes all children in families subject to the cap). This is often confused with the benefit cap, which places a cap on the amount of social security paid to households if they have no or low earnings and where they do not have a disqualifying criteria, including having caring responsibilities or a disability. Both policies are ‘highly unusual’ in an international context: only Denmark has an equivalent benefit cap in the EU and only 3 other EU countries have a cap imposed on financial support relative to the amount of children a claimant has (and none of these are as low as two children). 
• Part of a move towards a sanctions-led social security system. The reform of benefit conditionality in the 2010s reflected a shift in welfare policy towards a punitive system that aimed to improve work incentives by sanctioning claimants and reducing their entitlement to means-tested benefits. A 2016 report from the National Audit Office found no evidence that benefit sanctions are an effective way of helping claimants find a job, while “the overall impact of sanctions on wider public spending is unknown.” Peer-reviewed academic research has found many flaws in the economic case for benefit conditionality in the UK welfare system, such as that it is “largely ineffective in facilitating people’s entry into or progression within the paid labour market over time” and that businesses held negative views on conditionality as it led to them “receiving large numbers of unsuitable and unfiltered job applications, with associated negative resource impacts…which undermines their chances of securing employment”. We will explore welfare conditionality more generally in a future edition of New Economy Brief.

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Fiscal prudence? The decision not to scrap the policy, as with so many of Labour’s recent policy proposals, has been driven by a desire to demonstrate ‘fiscal prudence’. The argument from the leadership is that the economy that Labour might inherit is in such a dire state that ‘good Labour policies’ need to be sacrificed on the altar of fiscal rectitude, and that any spending commitment needs to be ‘fully funded’. Given the party also has no interest in going into an election talking about tax rises, this in practice means that new policies need to be ‘funded’ by finding savings from other departmental budgets. (We have discussed the debate around fiscal rules elsewhere.)

• Will it happen? A note of scepticism is sounded by the FT’s Stephen Bush, who argues that, while Labour is arguing that they will stick rigidly to Conservative spending plans in their pre-election communications, the chances of them doing so in office are limited. It should be noted that most commentators do not seriously believe that even Jeremy Hunt plans to stick to his own spending plans (which pencil in a large post-election spending squeeze). Likewise, the Guardian’s Polly Toynbee argues that Labour will ‘do’ more than they feel able to promise, and she bets that “Reeves and Starmer will be bolder than anyone now expects”.

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Has the policy been working on its own terms? The government’s rationale for implementing the two-child limit is to change work incentives and influence low-income families’ decisions to have children, ensuring that “families in receipt of benefits face the same financial choices as those supporting themselves solely through work”.

• Strong evidence says ‘no’. A timely report from academics studying Benefit Changes and Larger Families found “no evidence of any increases in employment among families affected by the two-child limit” and that “the two-child limit has had only a very small effect on fertility, meaning its main effect is to push families with three or more children further into poverty.“ (Mary Reader and Jonathan Portes provide a good explanation why in an article for the Guardian.) The Child Poverty Action Group also found that most families subject to the two-child limit are already in work. 
• It disproportionately affects minoritised groups. As the policy is targeted at larger families, households from marginalised backgrounds are hardest hit, particularly women and lone parents from ethnic minorities. The cumulative impact of tax and welfare reforms, published by the Equality and Human Rights Commission, found that changes to policy between 2010 and 2017 disproportionately and adversely affected women, ethnic minorities, low-income households and disabled people.
• And risks increased violence against women and girls (VAWG). Women's Budget Group argue that the policy fails to recognise the impact of domestic abuse and can leave survivors trapped with an abusive partner, as claimants are often forced to choose between poverty and personal safety.

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Political case for scrapping the two-child limit. Whilst one poll has shown the majority of the public still back the policy, pollster John Curtice suggests that the public has been more supportive of income support for working age people since the Covid-19 pandemic. He thinks that “an opportunity will indeed open up for the [Labour] party to create a narrative that persuades voters that it should be given the task of running an enhanced welfare state in post-Covid-19 Britain.“ The ‘scrounger’ narrative about benefit claimants has also been in decline: the proportion of people disagreeing with the statement that “many people who get social security don’t really deserve any help” in the British Social Attitudes survey has been over 40% since 2018, whilst those who agree has dropped to around 20%. Further, between 40-50% of the public think that the benefit system offers too little support for people on low incomes bringing up children, around double the proportion of those who think that it offers the right amount of support and triple the proportion of those who think it offers too much support.

• The economic case for abolition. It is important to remember that social security spending has an economic, as well as a social benefit. IPPR and the TUC have previously calculated that abolishing the two-child limit, alongside uplifts to the child element of universal credit and the child tax credit, would increase GDP by 0.5% (£14 billion a year). The Child Poverty Action Group argue that “unless the policy is abolished, the number of children affected will reach 3 million, as more children are born under the policy.” Their analysis finds that abolition would cost £1.3 billion and lift 250,000 children out of poverty completely and reduce poverty for a further 850,000 children. The Women’s Budget Group calculated that lifting 250,000 children out of poverty could save £2.3 billion in future ‘societal costs’ - through higher demand for public services, lower earnings potential and higher unemployment - “nearly twice as much as it would cost to remove the policy”. “If there is a cheaper child poverty reduction policy out there, I’d like to know what it is” notes Sam Freedman, podcast host and former senior policy adviser to Michael Gove.
• Communications strategy. The Fabian Society has argued that scrapping the policy altogether would require communications that appeal to fairness between children of different ages and explain the policy on the basis of the parents' circumstances, such as parents who are working, disabled or caring for young children. Their research found that these arguments are “likely to be more effective than saying that children are not to blame for their parents’ choices or that supporting children is an investment in the country’s future”.