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Sir Keir Starmer is looking at scrapping the two-child benefit cap in an attempt to appease Labour MPs, according to government officials, potentially leaving a hole of some £3bn in the autumn Budget.
The UK prime minister is seeking to head off a rebellion by backbench MPs over his welfare reforms by announcing measures to address child poverty. He has said in private conversations that he is keen to find a way to scrap the two-child benefit cap altogether.
Liz Kendall, the work and pensions minister, is also understood to be in favour of scrapping the cap, as is education secretary Bridget Phillipson, although other options are being looked at, according to officials.
However, the government’s child poverty strategy, which had been expected to be published in the spring, has been delayed until the autumn because of the probable costs that any move to scrap the benefit cap would entail, according to people briefed on the move.
Chancellor Rachel Reeves is widely expected to raise taxes in the autumn Budget to bolster government finances, although further cuts to welfare spending are seen as another way of filling the fiscal hole.
UK government borrowing unexpectedly rose in April on the back of higher public spending, piling pressure on Reeves ahead of next month’s spending review.
Starmer hinted at a partial U-turn this week on a separate policy — the decision to remove winter fuel payments from 10mn pensioners — by saying he wanted to bring more pensioners within the scope of the benefit.
Next month, MPs will vote on his package of welfare cuts, with roughly 80,000 people set to lose access to disability benefits. Many claimants who need help washing themselves, or supervision or prompting to use the toilet, could no longer be eligible.
Labour MPs involved in organising rebels say more than 160 disagree with the proposals, and are planning to abstain or vote against.
Starmer is mindful of a need to maintain party unity and quell the rebellion even as he tacks to the right on issues such as welfare, immigration and trans rights in his efforts to fend off rightwing parties, especially Reform UK.
The decision last July to end the universal winter fuel payment was intended to save £1.5bn. Reversing some of those savings will create problems for Reeves, while removing the two-child cap would add a further £3bn hole.
Reeves is understood to not want costly policies to be announced too far out from a fiscal event, when policies are costed by the fiscal watchdog, the Office for Budget Responsibility.
About 4.8mn children are forecast to be in poverty in 2029-30 with the two-child limit in place, including half of children in large families, according to the Resolution Foundation.
Meanwhile, Morgan McSweeney, Starmer’s chief of staff, is understood to be wary about ceding too much ground on welfare in efforts to appease Labour MPs. A YouGov poll last year found that 60 per cent of the public, including more than 80 per cent of Conservative and Reform voters, supported the two-child benefit cap.
Reeves is engaged in bruising talks with ministers about controlling public spending as part of the review, and one ally of the chancellor said: “If we did what some people want on the benefit cap, that would add further pressures.”
An ally of Kendall said that, while the movement on winter fuel was welcomed by Labour MPs, bold action on child poverty would be more likely to sway them into backing reforms to sickness and disability benefits. “Child poverty is the thing that’s relevant in that debate,” they said.
A senior minister close to Starmer agreed: “We’ve got to do something on child poverty.”
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