New Universal Credit reforms could lift 230,000 children under five out of poverty, says Fabian Society

The Fabian Society today releases research that calls for new Universal Credit payments to tackle poverty for children under five.

The report, First Steps - An ambitious strategy to tackle early years poverty with public consent,

recommends several measures for the 2025 Budget, including scrapping the two-child limit for working families, and families with a disabled child, as first steps towards an ambitious overall strategy to end child poverty.

The report shows that more than a third of under-fives in England and Wales live in poverty. This is the highest poverty rate of any age group.

Evidence shows that this has lifelong consequences. The report argues that the government should focus its Child Poverty Strategy on the early years, as this will have the most significant impact on health and wellbeing, school readiness, and long-term economic outcomes. Without tackling early years poverty, the government will struggle to achieve its missions on health, opportunity, and living standards.

Inadequate social security is the major cause of this poverty, including the two-child limit for Universal Credit. Therefore, a significant and sustained fall in early years poverty can only be delivered through increases in social security, the report argues.

The report recommends that the two-child limit should be completely scrapped as soon as possible. It also recommends the introduction of a ‘baby' and a ‘toddler' element within Universal Credit to provide additional support to families with young children.

Public opinion is against scrapping the two-child limit completely and doing so immediately risks undermining the case for social security spending, the report argues. According to polling conducted by YouGov for the report, when asked about the two-child limit, 59 per cent of respondents said ‘the two-child limit should be kept' – compared to 25 per cent who said ‘the two-child limit should be removed'.

This is why the paper proposes a two-step approach to scrap the two-child limit, that would benefit the vast majority of children affected by the limit immediately and build support towards scrapping the limit altogether. This first step would benefit nearly nine out of ten children under five (89 per cent) currently hit by the two-child limit, but would be far more popular than scrapping it completely in one big step, and more popular and effective than raising the cap to three children.

Combined with baby and toddler elements, the first step to scrap the two-child limit could result in one of the largest falls in early years poverty since the 1990s – lifting 230,000 children under five out poverty.

When the Fabian Society and YouGov polled different ‘first steps' to fully scrap the two-child limit, it found public support for the report's recommendations:

Ben Cooper, Fabian Society Research Manager, and author of the report said:

“While the public finances are incredibly tight, the government can act to transform the lives of babies and toddlers living in poverty – and do so with public support.

“The government should exempt families in work and families with disabled children from the two-child limit. This would be part of a two-step plan to scrap the limit entirely. 

“Public opposition to scrapping the two-child limit immediately is strong, but the public would support policies to exempt most children from the limit. This includes those who voted Labour in 2024, but who are looking to other political parties – including both the Greens and Reform. This measure can start to rebuild Labour's fractured electoral coalition, while achieving the kind of change Labour was elected to deliver.

“Combined with new financial support for all families with children under five, the government would lift hundreds of thousands of babies and toddlers out of poverty. And it could do so without undermining public support for further action to tackle child poverty before the next election.”

Notes

1. 1. First Steps – An ambitious strategy to tackle early years poverty with public consent is published by the Fabian Society. It was edited by Iggy Wood. It will be available from 00.01 on 25.05.2025.
   2. Early years poverty is defined as a child under the age of five living in a household with an income less than 60 per cent of the median.
   3. The Fabian Society commissioned YouGov Plc to survey 4,300 adults across Great Britain. The survey was carried out online. Fieldwork was undertaken between 18 and 20 February 2025.  The figures have been weighted and are representative of all adults (aged 18+) in Great Britain.
   4. The Fabian Society commissioned Howard Reed at Landman Economics to model a series of policy options, focused on its impact on child poverty rates and their cost. The results use the Family Resources Survey 2022 – 2023, adjusted to take account of income and housing costs growth since the data was collected. All the costings are in today's prices, and reflect the cost if they were implemented this year. All results are for England and Wales only.