Rachel Reeves is coming under renewed pressure to end the two-child benefit limit in October’s budget, after the Guardian revealed the chancellor is preparing to keep it in place.
MPs and anti-poverty campaigners are warning that any delay in scrapping the policy will keep hundreds of thousands of children in poverty, with just weeks until Reeves unveils her first major fiscal package.
The Guardian reported on Wednesday that Reeves was preparing to raise taxes and cut public spending at the budget in an attempt to fix a black hole in the budget that is bigger than Treasury officials were expecting.
Among the measures being considered by the chancellor are keeping the benefit limit in place and limiting departmental spending rises to an average of just 1% above inflation a year – a move that would mean heavy cuts to unprotected departments.
The revelations have caused dismay among many on the left, who hoped Reeves might bring an end to the two-child benefit limit and find extra money for public spending on areas such as local government and courts.
Kim Johnson, the Labour MP for Liverpool Riverside, said: “It is disappointing that Labour is not leaping at the opportunity to axe the two-child cap and immediately lift 400,000 children out of poverty.”
Referring to the child poverty taskforce set up last month by the prime minister, Keir Starmer, Johnson added: “The taskforce is a welcome step but it’s not set to report back until spring. It is untenable that a Labour government takes no action until then to ease the hardship for the 4 million children living in poverty in this country.”
John McDonnell, the former shadow chancellor, said: “The two-child limit has become a symbol of the new government’s lack of appreciation of the need for urgent radical action.”
McDonnell, who was suspended from the parliamentary Labour party last month for voting for an amendment calling for an immediate end to the benefit limit, added: “Children are living in poverty now, many classified as facing destitution.
“Delaying action on lifting children out of poverty cannot morally, economically or politically be justified.”
The Institute for Fiscal Studies estimated that lifting the limit would cost £2.5bn a year at first, rising to £3.6bn when fully rolled out. Reeves is under significant financial pressure, however, due to higher than expected government borrowing, which will make it harder to hit her target of debt being forecast to fall as a percentage of GDP in five years’ time.
Campaigners say the cost is worth it, given how many children will be affected. The Child Poverty Action Group (CPAG) has estimated it could lift 300,000 out of poverty and improve the lives of another 700,000.
Alison Garnham, the chief executive of CPAG, said: “The government has pledged an ambitious child poverty-reduction strategy but unless it scraps the two-child limit on benefits – and soon – it will fail to deliver on that.
“Children in poverty are hungry now. Their life chances are being jeopardised now. They need the government to do the right thing and scrap the policy in the autumn budget before more damage is done.”
Many are also concerned about what the chancellor intends to do with departmental spending.
On current estimates, Whitehall budgets are due to rise 1% a year in real terms over the next parliament. But given that certain parts of public spending are likely to be protected, such as health and schools, this would entail heavy cuts to areas such as local government and the courts service.
Reeves will use next month’s budget to set out departmental spending plans for one year, before announcing a longer-term spending review next year.
Stuart Hoddinott, a senior researcher at the Institute for Government, said: “Current spending plans would almost certainly lead to worsening public service performance by the end of this parliament.”
McDonnell added: “After 14 years of Tory austerity we have inherited the worst financial situation since the second world war. But from the ashes of the war, the Labour government built the National Health Service, the welfare state, and tackled poverty and inequality.
“The new Labour government must be just as bold.”