Rachel Reeves Signals Plan to Scrap Two-Child Benefit Cap in Upcoming Budget

Shadow Chancellor Hints at Major Welfare Shift

Shadow Chancellor Rachel Reeves has signaled the Labour government's intention to fully abolish the controversial two-child benefit cap in the upcoming November budget. This move marks a significant shift in the party's stance on the policy, which has been a focal point of debate regarding child poverty in the United Kingdom.

Speaking on Monday, November 10, 2025, Reeves stated, 'I don't think that it's right that a child is penalised because they are in a bigger family, through no fault of their own.' She further added that 'we'll take further measures' to combat child poverty in the budget, which is anticipated to be delivered on November 26.

Understanding the Two-Child Benefit Cap

The two-child benefit cap was initially introduced by the Conservative Government in 2017, having been announced in 2015 by then-Chancellor George Osborne. The policy restricts families from claiming child tax credit or Universal Credit for their third or any subsequent children born after April 5, 2017. Its original aim was to ensure that households on means-tested benefits faced similar financial considerations about family size as those supporting themselves solely through work.

However, studies have indicated that the cap has had 'no impact at all' on employment rates. It is distinct from the overall benefit cap, which limits the total amount of benefits a household can receive.

Impact and Cost of the Policy

The cap has drawn widespread criticism for its impact on child poverty. It currently affects approximately 470,000 families and an estimated 1.6 million children across the UK. Other figures suggest that 1.7 million children are affected by the policy. Charities and campaigners, such as the Child Poverty Action Group, argue that the policy pulls an estimated 109 children into poverty every day. Families affected by the cap can lose up to around £3,200 per year for their third and subsequent children.

Abolishing the cap is projected to lift a significant number of children out of poverty. Estimates suggest that between 250,000 and 350,000 children could be lifted out of poverty immediately, with some projections reaching up to 470,000 children. The cost of scrapping the policy varies across different analyses:

• The Resolution Foundation estimates a cost of approximately £3.5 billion by 2029-30.
• The Child Poverty Action Group (CPAG) and the Joseph Rowntree Foundation estimate around £2 billion for 2025/26, rising to £2.8 billion by 2029-30.
• The Institute for Fiscal Studies (IFS) suggests a cost of £2.5 billion annually, increasing to £3.6 billion by 2035.

Advocates for its removal highlight that child poverty costs the UK economy an estimated £39 billion annually.

Political Context and Future Outlook

The indication from Rachel Reeves represents a notable shift for the Labour Party. Previously, Labour leader Keir Starmer had defended the cap, citing public finance concerns, and had even suspended seven Labour MPs who voted against it. However, Starmer has since emphasized Labour's commitment to reducing child poverty. A taskforce led by Education Secretary Bridget Phillipson, commissioned to recommend ways to reduce child poverty, is understood to have concluded that fully abolishing the cap is the most effective approach.

This potential policy change is seen as an effort to address concerns among Labour MPs and to fulfill the party's broader commitment to tackling child poverty ahead of the next general election.