Labour should scrap child benefit cap for two children as soon as possible | Family Benefits

The first real test of Labour’s hard line on public spending has come a week after the party came to power – and it is a big one.

The issue is child poverty and in particular the two-child limit introduced by the Conservatives in April 2017. This prevents households from claiming Universal Credit or Child Tax Credit for a third or subsequent child born after that date.

For good reason, the two-child limit is hated by many Labour MPs because, while it has no impact on the number of children families have, it has the predictable effect of increasing poverty.

According to the Resolution Foundation think tank, the number of families affected by the policy has risen from 70,000 to 450,000 in the last six years and a third of its impact is still to come.

According to the Child Poverty Action Group (CPAG), the two-child limit can cost households up to £3,455 a year, a major blow to the family budget. Child poverty is at an all-time high and Labour says it has “an ambitious strategy” to reduce it.

Currently, this ambitious strategy does not include removing the child benefit cap for two children, even though CPAG claims this would lift 300,000 children out of poverty at a cost of £1.7 billion a year. No other measure the government is taking would be as cost-effective in reducing the number of children living below the poverty line.

Labour argues that removing the two-child limit is not in its manifesto and that it will have to wait until the necessary funds are available to abolish it. The argument is that this would open the way to a host of other demands.

This may seem like a good move in the short term, but it is still ill-advised. The two-child limit will not survive five years of a Labour government with such a huge parliamentary majority. The question is not if, but when, the policy originally put in place by George Osborne will be abandoned.

Delaying this decision condemns more children to a life of misery and deprivation. There are economic arguments for a more generous approach to welfare – poor families tend to spend more of their income than rich families – but there is also a moral dimension. It is simply wrong to push more children needlessly into destitution.

Finally, £1.7tn is a small sum in the context of a £2.7tn economy, and there are many ways in which the chancellor, Rachel Reeves, could easily find it. As the tax expert Richard Murphy has shown, taxing capital gains at the same rate as income would raise the Treasury £12tn a year, while limiting pension relief to the basic rate of income tax would raise a further £14.5tn. Removing the Bank of England’s losses on its holdings of government bonds from the calculation of the government’s debt rule could raise around £20tn, according to the consultancy Oxford Economics.

Labour has always been keen not to do anything – or say anything – that might disrupt financial markets. It makes sense, then, to exercise some caution. But this approach has its limits.

Keanu Reeves has spoken a lot about how Britain lives in an age of insecurity, and there is nothing more insecure than a family facing a welfare cut of more than £3,000 a year. The two-child limit should be scrapped immediately.