Sir Keir Starmer’s decision to scrap the two-child benefit cap will make Labour MPs feel good about themselves. But breaking their promise not to raise income tax risks cancelling out any residual goodwill from voters.
Over the last two days, Starmer and Chancellor Rachel Reeves have bowed to pressure from anti-poverty campaigners and from within Labour to end the policy, which restricts child tax credit and universal credit to the first two children in most households. This week, both have strongly hinted that the cap will be lifted in the Budget later this month.
“I wouldn’t be telling you that we’re going to drive down child poverty if I wasn’t clear that we will be taking a number of measures in order to do so,” Starmer told ITV’s Lorraine on Tuesday. On Monday, Reeves had appeared to reject the idea that she would only partially lift the cap by bringing in a tapered approach, which limited extra benefits to three or four children. She told BBC Radio 5 Live she didn’t think children should be “penalised” for being part of large families.
Up until recently, No 10 had always argued that, while Labour MPs may be in favour of removing the arbitrary limit, their views were out of touch with public support for keeping it and, quite simply, the Government could not afford it.
What’s changed? Not affordability, certainly. Reeves is in an even worse fiscal hole than this time last year. What’s shifted is a sense of time speeding up for an increasingly rebellious party, some of whom think Starmer and Reeves are condemning them to being one-term MPs.
The conversations about Starmer’s future have stepped up over the last fortnight as Labour MPs vent their frustrations at dire polling numbers. Big-ticket reforms such as increasing home building or workers’ and renters’ rights are yet to materialise, leaving MPs with little to show for 18 months in office.
“I just think back to the end of the last Labour Government at the leader’s conference speech and there would always be a list of what we’ve achieved. Surestart, the cancer waiting time guarantee, civil partnerships, introducing the social chapter, improving maternity pay, a ban on cluster bombs and the first ever climate change act,” a Labour MP lamented. “We want a list like that, and child poverty would be a start.”
Bringing the public on board is key. A YouGov survey earlier this year found that 59 per cent of the public overall said the limit should be kept and 25 per cent said it should be removed. Labour voters also want the limit kept. A majority – 51 per cent – of respondents who voted Labour in 2024 back the two-child limit, compared to 32 per cent wanting it removed.
Politics has been remodelled too. For much of this year, the Labour Party has been eying the threat from Reform over its right shoulder. Now, they’re under the threat of whiplash by simultaneously looking over their left shoulder. That’s because a newly resurgent Green Party under Zack Polanski is making inroads in the disaffected Labour vote. Like a lefty Reformista, he blends slick comms with simplistic solutions, like a proposed one per cent tax on the assets of the super-rich. But never mind the associated capital flight overseas.
The Greens, with their four MPs, have so far found it more difficult to establish comparable influence over a governing party with more than 400. However, Labour’s vulnerability lies in its dependence on voters who will reluctantly support them to defeat Reform, solely due to their scepticism of a more radical left-wing party’s electability.
Scrapping the two-child cap gives those left-leaning voters an active reason to choose Labour again at key elections in Cardiff, Edinburgh and across England this May. According to analysis by Mark Pack, a Liberal Democrat peer, Labour has lost 39 council seats since May this year, while Reform has gained 49 and the Lib Dems 19.
“It’s existential for a Labour Government to end its time in office having cut the number of children in poverty,” John McTernan, an advisor to former prime minister Tony Blair, told The i Paper. “Rachel is making the case we have to do everything we can to stay within the rules, but there are things we won’t do and one of them is leaving children in poverty. Electorally speaking, we have got to give Lib Dems permission to vote Labour or show voters tempted by the Greens their policies on a wealth tax can’t be implemented.”
Reeves still needs to flesh out how she finds £3.6bn a year to pay for scrapping the cap, even as her MPs are coming back for more. Child poverty charities are also urging the Government to scrap the overall household limit on benefits. If the two-child cap is lifted, the Institute for Fiscal Studies estimates some 70,000 of the poorest households would then be pushed above the overall benefit cap, meaning the gains from reversing the two-child limit would be fully or partially wiped out.
“For it to work properly, the cap on welfare for families will also need to be removed. In my constituency, removing the two-child benefit cap will impact 9.1 per cent of children but that will then fall to 6.6 per cent if the welfare cap isn’t removed. They would still be left in poverty as we are a high cost of living area with rents comparable to London,” Rachel Maskell, Labour MP for York Central, told The i Paper.
If Reeves were to remove the cap on welfare payments to families, she would risk relitigating a 15-year-old argument. Under the coalition Government, former chancellor George Osborne won the argument that no working family should be worse off than one on benefits.
And even if she keeps a cap on welfare payments, there is no getting away from the fact that the Government is going to have to explain why it will raise taxes after promising not to come back for more.
Labour MPs have already warned Reeves that breaching the manifesto pledge would be her “Nick Clegg moment” – akin to the ex-Lib Dem leader’s broken promise, made before joining the coalition government with the Tories in 2010, not to increase tuition fees.
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On Tuesday, some Labour MPs were cock-a-hoop at the planned change to the two-child benefit cap. “It’s the right thing to do because they speak to who you are as a person and as a party,” as one Labour MP put it.
But another Labour MP said the public would be baffled by the decision.
“I can’t believe we are doing this. Not even Labour voters want it. How can we sell to the public that we are putting their taxes up – not for more police, not for more NHS spending, but simply to add to the welfare bill?” a Labour MP said. “Oh, it’ll make my colleagues happy but it’s so short-sighted. I suppose it’s just a stay of execution for Rachel and Keir.”
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