Removing or reforming the two-child
limit would reduce child poverty. With the government's Budget
and child poverty strategy fast approaching, this briefing
summarises the evidence available on the policy's effects, and
sets out the government's options should it want to change the
policy.
When fully rolled out, the two-child
limit will reduce the incomes of affected families by over £4,400
per year (a tenth of their income) on average, increasing child
poverty by 630,000. In deciding how to proceed, the government
must weigh different considerations. These include the policy's
effects on children's immediate material living standards, and
uncertain longer-term consequences, as well as the £3.6 billion
cost of reversal, and differing opinions on the role the benefits
system should play in supporting children and their
families.
Aside from full abolition or
maintaining the status quo, intermediate options exist. These
come with a lower price tag, but achieve smaller reductions in
poverty relative to full reversal. Different alternatives have
different merits. For example, reintroducing a payment for third
and subsequent children, but at a lower rate than first and
second, might closer reflect “economies of scale” in family size;
a payment set at half the rate for first and second children
would cost around £1.8 billion and reduce child poverty by
310,000. Exempting working families from the limit would
strengthen work incentives, but fail to help some of the poorest
children; at a cost of £2.6 billion, it would reduce child
poverty by 410,000 but do much less to alleviate deep
poverty.
Many have warned of possible
consequences of the two-child limit on children's education,
health and other longer-term outcomes. It remains uncertain
whether, and to what extent, these effects will materialise. A
recent IFS evaluation found no effects of the policy on ‘school
readiness' at age 5.
Tom Wernham, a Senior Research
Economist at IFS, said:
“Reversing the two-child limit is one
of the most cost-effective options the government has to achieve
a quick reduction in child poverty. There are ways to partially
undo the policy that would cost less than the full £3.6 billion
needed for its full removal. Ultimately, the government needs to
decide who it wants to help and what it wants the benefit system
to do. It could target support on the youngest children, or
strengthen work incentives by lifting the limit for families in
work, or spread the extra cash more thinly but across a wider
group. None of these options would be as costly as full reversal,
but nor would they do as much to reduce
poverty.”
ENDS
Notes to Editor
Options for reforming the two-child limit is an IFS
briefing by Tom Waters and Tom Wernham, part of the IFS
Green Budget 2025.
