A Cabinet minister has delivered the clearest signal to date that Labour is poised to axe the controversial two-child benefit cap, despite the Chancellor preparing another round of punishing tax rises to plug a vast hole in the public finances.
Education Secretary Bridget Phillipson declared she was “confident” the Government would “do the right thing” to tackle child poverty, amid mounting pressure from left-wing MPs, Reform UK and anti-poverty campaigners to abandon the Conservative-era policy.
The move could cost the Treasury up to £3billion annually, even as Rachel Reeves scrambles to find revenues ahead of her 26 November Budget. The Chancellor is expected to target wealthier Britons with measures including pension tax relief cuts, extended tax threshold freezes and potential property levies to address an estimated £30billion shortfall in the public finances.
Mounting Political Pressure
The two-child benefit cap, introduced by former Conservative Chancellor George Osborne in 2017, prevents parents from claiming the child element of Universal Credit or child tax credit for a third or subsequent child born after April 2017. The monthly payment currently stands at £292.81 per child.
According to the Child Poverty Action Group, 109 children are pulled into poverty every day by the policy. Scrapping the cap entirely would lift 350,000 children out of poverty instantly, at a cost estimated between £2billion and £3.5billion annually. Another 800,000 children would see the depth of their poverty reduced.
Ms Phillipson, who is battling former Leader of the House of Commons Lucy Powell for Labour’s deputy leadership, made her strongest comments yet during a series of broadcast interviews on Sunday morning.
Asked on BBC’s Sunday with Laura Kuenssberg whether she would resign if the benefit cap remains in place, the Education Secretary replied: “I am confident that we as a Government will do the right thing by children growing up in poverty in our country. We’ve already started that process, there’s more to do, I will make that happen.”
Personal Crusade
Ms Phillipson, who co-chairs the Government’s child poverty taskforce alongside Work and Pensions Secretary Pat McFadden, suggested there was an “urgency” to lifting the cap.
Speaking to Sky News’s Sunday Morning with Trevor Phillips, she emphasised: “There’s an urgency to this. With every year that passes more children are moving to poverty because of the two-child limit. It was a Tory policy. We would not have introduced it. I’m clear what needs to happen. I’ll be in Cabinet arguing for that, and that’s why I’ve made tackling child poverty my number one priority during this campaign.”
The Education Secretary, who grew up in poverty in a single-parent household in Gateshead, has previously described the issue as “profoundly personal” and called the policy “spiteful”. She recalled how one winter, a neighbour pushed an envelope with money through the letterbox reading: “For Bridget’s coat.”
Treasury Considerations
The Treasury is understood to be examining several options for modifying the cap rather than scrapping it entirely. These include limiting additional benefits to three or four children, introducing a “taper” system whereby parents receive the most for their first child and progressively less for subsequent children, or lifting the cap only for working parents on Universal Credit.
However, the strength of Ms Phillipson’s language suggests the Government may be moving towards complete abolition of the policy, which Labour MPs have consistently opposed since its introduction.
The child poverty taskforce is expected to report ahead of the November Budget with a comprehensive strategy that will include recommendations on the two-child limit.
Fiscal Headwinds
The potential £3billion cost of scrapping the cap comes at a particularly challenging moment for the Chancellor. Ms Reeves is grappling with a slowing economy, productivity downgrades, rising debt interest costs and a series of embarrassing U-turns on welfare reforms that have collectively worsened the fiscal position.
Public sector net debt stood at 96.3% of GDP at the end of June 2025, with debt interest spending forecast to reach £111.2billion in 2025-26, exceeding the entire schools budget.
The Chancellor has already imposed £40billion of extra taxes at last year’s Budget, the biggest single-package increase on record. These included raising the rate of National Insurance employer contributions to 15% from April 2025, bringing pensions into the inheritance tax regime from 2027, increasing capital gains tax for shares, and hiking stamp duty on second homes.
Tax Rises on the Horizon
With borrowing higher than expected and the need to find additional revenues, Ms Reeves is reportedly considering a range of measures targeting wealthier taxpayers.
Pension tax relief, which costs the Government around £50billion annually, remains in the Chancellor’s sights. Options under consideration include cutting the tax-free pension commencement lump sum cap from £268,275 to £100,000, introducing a flat rate of tax relief rather than the current income-based system, or limiting higher-rate relief altogether.
The Chancellor is also examining extending the current income tax and National Insurance threshold freeze beyond 2028, a stealth tax that drags more workers into higher brackets through fiscal drag.
Property taxes could face reform, with speculation around a potential “mansion tax” on high-value homes. Changes to capital gains tax rates, potentially aligning them more closely with income tax rates, are also reportedly being considered.
Political Calculations
Ms Reeves has reportedly warned business leaders to adopt a more positive tone about Britain’s economic prospects, expressing concern that relentless negativity could propel Reform UK leader Nigel Farage into Downing Street.
Despite the dire fiscal situation, conceding on the two-child benefit cap would help the Government head off unrest on its left flank whilst simultaneously neutralising criticism from Mr Farage, who has also called for the policy to be scrapped.
However, public opinion on the cap remains divided. A Fabian Society survey with YouGov earlier this year found that 59% of the public overall said the limit should be kept, with only 25% supporting its removal. Even among Labour voters, 51% backed keeping the two-child limit, compared to 32% wanting it removed.
Deputy Leadership Contest
Ms Phillipson’s intervention on the benefit cap comes as she trails in polling for Labour’s deputy leadership election. Recent surveys suggest rival Lucy Powell, the former Leader of the House of Commons who was removed from Cabinet in the recent reshuffle, enjoys a substantial lead among party members.
A LabourList/Survation poll put Ms Powell on 57% compared to Ms Phillipson’s 26%, with 18% undecided. Ms Powell, positioned on the party’s soft left, has also called for the Government to be “clearer” about its wish to abolish the cap, even if implementation would not be immediate.
Ms Phillipson is widely seen as Prime Minister Sir Keir Starmer’s preferred candidate for the deputy leadership role, making her comments on the benefit cap a strong indicator of the Government’s likely direction.
The deputy leadership result will be announced on 25 October, just over a month before the Chancellor delivers her Budget.
Opposition Reactions
Liberal Democrat Treasury spokesperson Daisy Cooper condemned what she characterised as government indecision. “The heartless two-child limit has to go, no ifs, no buts,” she stated. “Dangling hope in front of desperate parents is inexcusable. Continuing to punish children just for being born is unforgivable.”
Conservative Shadow Chancellor Mel Stride has criticised Ms Reeves’s handling of the economy, warning that pensioners and savers should not become “the Chancellor’s cash machine” through tax raids on retirement savings.
Next Steps
With the child poverty taskforce set to report imminently and the Budget now just weeks away, the Government faces a crucial decision on whether to prioritise tackling child poverty or maintaining fiscal discipline.
Ms Phillipson’s comments suggest the political pressure to scrap the cap has become overwhelming, despite the significant cost at a time when the Treasury is desperately seeking additional revenues rather than new spending commitments.
The Chancellor’s Budget on 26 November will reveal whether Labour is prepared to make good on its longstanding opposition to the two-child limit, or whether fiscal constraints will force yet another difficult compromise.
Follow for more updates on Britannia Daily
Image Credit:
Bridget Phillipson — official cabinet portrait (July 2024), photo by Lauren Hurley / No. 10 Downing Street, licensed under the UK Open Government Licence v3.0
