Why is Rachel Reeves considering lifting the two-child benefit cap?

After the bizarre briefings from No 10 about a leadership challenge to the prime minister, and increased speculation about a hike in income tax, Rachel Reeves seems to be in search of something to give Labour MPs a reason to live (politically speaking). Hence her clearest hint yet that the two-child cap on benefits may soon be lifted…

It was imposed by George Osborne in 2013 when he was chancellor in the Conservative-Liberal Democrat coalition, ostensibly to help repair the public finances. An “austerity” measure, it was presented as an almost moralistic policy because it was “fair” to families who limit their size according to their means. It was fiercely criticised at the time because of the effect it would have on child poverty. There are some exemptions from the policy, which only affects those born after 2017.

No, but it would lift between 350,000 and 630,000 out of it almost immediately, depending on the design of the policy and the definition of “poverty” chosen. In all, some 1.6 million children could benefit.

Changes floated in the past have included adding an extra child or two to the limit, paying a lower rate to additional children, or altering eligibility. However, such adjustments wouldn’t save much money compared to a simpler system with no upper limit. It is the latter idea that Reeves seems to be considering, based on a recent interview: “I don’t think we can lose sight of the costs to our economy in allowing child poverty to go unchecked. In the end, a child should not be penalised because their parents don’t have very much money.”

About £3bn – not much when compared to a total social security bill approaching some £400bn.

A great deal to Keir Starmer and Reeves; abolishing the cap could save their jobs.

Given that she is likely to break Labour’s key election promise not to put up income tax rates, and in a general atmosphere of retrenchment and a sluggish economy with stagnant living standards, lifting the cap would give Labour backbenchers and activists some reason to believe they are doing what they came into politics for – creating a fairer, more equal society.

Dissatisfaction about the pair’s performance might well be quelled, at least for a time. It would be a “totemic” policy they can point to when criticised for higher taxes. With the breakfast clubs and expansion in childcare, the Labour government will at least have something to boast about in terms of tangible “delivery” for kids.

Although lifting the cap is wildly popular within Labour circles, the general public is more equivocal. Unlike the abolition of the winter fuel allowance (since partially reversed), the cap is not universally hated. Depending on how the question is framed, over half the country favours keeping the cap.

As part of their broad pitch to be “fiscally responsible”, the Conservatives say the cap should be maintained on the grounds that smaller families shouldn’t subsidise larger ones. However, there is a small “natalist” movement in some Conservative circles, notably former MP Miriam Cates, that backs any policy that boosts the birth rate and reduces demand for immigrant labour.

Similarly, Reform UK wants to lift the cap – but only for “British families”, with no precise definition of who might not qualify.

It is looking increasingly likely; it would seem odd for Reeves to raise expectations only to disappoint disillusioned MPs on Budget day itself. It would also usefully blunt any internal challenge on child poverty posed by the likes of Gordon Brown, Neil Kinnock, Andy Burnham and Lucy Powell. Who knows, the public might even come round to liking the idea.