Chancellor Rachel Reeves has said the two-child benefit limit will be removed altogether from next April.
The policy, introduced under the Conservatives in 2017, means parents can only claim Universal Credit or tax credits for their first two children.
Announcing the move, which is estimated to cost £3 billion a year by 2029–30, Reeves said his party “does not believe that the solution to a broken welfare system is to punish the most vulnerable children”.
However, the Tories have criticized the decision, arguing that people on benefits should make the same financial choices about having children as everyone else.
This cap does not affect child benefit, which is paid to families where the highest-earning parent earns less than £80,000.
Defending the cap, Conservative leader Kemi Badenoch said it “strikes the right balance between supporting people who are struggling and protecting taxpayers who are themselves struggling”.
He accused the government of losing control over welfare spending and said: “They are raising taxes on workers, pensioners and savers to pay for handouts to keep their backbenchers quiet.”
Reeves is under increasing pressure to remove the cap, with Labor MPs and charities arguing it is the most cost-effective way of reducing child poverty.
The government estimates that this measure will mean 450,000 fewer children in poverty by 2029–30.
The announcement, which has been welcomed by child poverty campaigners, was welcomed by Labor MPs in the House of Commons.
Reeves said this limit “pushes more children into poverty than any other” and that it “made almost no difference to the size of families”.
“(The Conservatives) said they were punishing parental choices – but it is the children who have paid the price for that party’s policies, which have made cynical tactics rather than real savings to the welfare system,” he told MPs.
The Chancellor said she was able to remove the cap – she said the move was “fully funded” – because she was tackling fraud and error in the welfare system, as well as cracking down on tax avoidance and reforming gambling taxes.
“Combined with the other steps we are taking, this Labor government is achieving the largest reduction in child poverty in Parliament since records began,” he said.
Alison Garnham, chief executive of the Child Poverty Action Group, said the move would be “transformational for children”.
“This is a much-needed new beginning in our country’s efforts to eradicate child poverty, and while much remains to be done, it gives us a strong foundation to move forward,” he said.
Labor MPs also praised the announcement.
In a joint statement, Helen Hayes and Debbie Abraham, who chair the Commons education and work and pensions committees, said removing the cap would have a “direct and positive impact” on children’s well-being.
However, he said the government’s upcoming child poverty strategy “needs to go much further”.
A total of 1.6 million children living in large families are affected by the policy, which applies to third or subsequent children born after April 6, 2017.
According to the Child Poverty Action Group, about 59% of affected families have at least one working parent.
There is some evidence from researchers that poverty rates among children in large families have increased since the implementation of this limit.
The poverty rate for all children has remained stable at about 30% since 2009.
But among families with three or more children, the child poverty rate is rising, from 40% in 2017 to nearly 44% last year.
Other research shows that the policy has had little impact on whether people decide to have more than two children.
Labor MPs and campaigners were pushing for a complete reversal of the policy, following reports the Treasury was also considering a tapered approach, where parents would get the most benefits for their first child and less benefits for subsequent children.
Other options reportedly considered included limiting additional benefits to three or four children.
However, earlier this month Reeves suggested he was in favor of scrapping the limit altogether, telling the BBC that children living in large families should not be “punished” through “no fault of their own”.
Although removing the cap has been a long-standing demand of many Labor MPs, Reeves faced increasing pressure to scrap it.
New deputy Labor leader Lucy Powell and Education Secretary Bridget Phillipson were among those who have indicated they want to see the cap scrapped in recent months.
In its election manifesto last year, Labor promised to develop “an ambitious strategy to reduce child poverty” and launch a taskforce in July 2024 after the party wins power.
However, many Labor MPs were disappointed that the party did not commit to abolishing the two-child benefit cap outright, with the government saying it would not make “unfunded promises”.
The comprehensive child poverty strategy was due to be published in the spring, but was delayed and is now expected in the coming days.
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