Labour will not scrap the two-child benefit cap despite pressure from left-wing MPs, with Downing Street sources saying the plan is now “dead in the water” following the government’s £5 billion welfare U-turn.
The decision comes after Sir Keir Starmer was forced to abandon key personal independence payment (PIP) reforms just minutes before a crucial Commons vote on Tuesday, leaving Chancellor Rachel Reeves with a major hole in her spending plans.
A No 10 source told The Sunday Times: “My assessment is that is now dead in the water.” A No 11 source warned MPs there would have to be “trade offs” for not introducing major welfare reforms, adding: “Whether that’s tax rises or not scrapping the two child benefit cap.”
The abandonment of plans to lift the controversial cap, which prevents parents from claiming child tax credit or universal credit worth up to £3,455 per year for more than two children, represents a significant blow to Labour MPs who had made it their next campaign target.
Earlier this year, Starmer had told his cabinet he wanted to scrap the cap and asked the Treasury to identify ways to fund the plan. The prime minister had even indicated in private conversations that he was keen to find a way to eliminate the cap altogether, according to government officials.
Major Welfare Climbdown Forces Rethink
The U-turn on the two-child benefit cap follows Labour’s dramatic retreat on disability benefit reforms that has left the government’s welfare agenda in tatters. Ministers were forced to shelve planned cuts to personal independence payments pending a review after more than 130 Labour MPs signed an amendment opposing the reforms.
The climbdowns have reduced projected annual savings from welfare reforms from £5.5 billion to £2.5 billion by 2029-30, according to the Institute for Fiscal Studies. This represents the third major welfare U-turn after previous reversals on winter fuel payments and disability benefits.
“The whole Bill is now unravelling and is a complete farce,” said Labour MP Rachael Maskell, who led the rebellion against the welfare reforms. Another Labour MP described the situation as “a f*****g farce,” adding that no one “knew what they were voting on anymore.
Work and Pensions Secretary Liz Kendall and Education Secretary Bridget Phillipson were understood to support scrapping the cap, but Treasury concerns about the £3.5 billion annual cost have now killed the proposal.
Political Pressure Mounts
The two-child benefit cap, imposed in April 2017 by then-Chancellor George Osborne, affects 450,000 families according to Department for Work and Pensions figures. Most of those hit – around 280,000 families – have three children, while 120,000 have four, and 56,000 are raising five or more.
The Institute for Fiscal Studies reported that the cap costs struggling households an average of £4,300 each year. Critics argue it has worsened child poverty, with the share of children in larger families in poverty increasing from 35 per cent in 2014/15 to 46 per cent.
Following Labour’s landslide victory last July, Starmer had suspended seven MPs for six months for voting with the SNP to scrap the cap. The prime minister had maintained that Labour wanted to remove it, but only when fiscal conditions allowed.
One Labour rebel warned: “It definitely needs to go. We cannot seek to trade off poor children against poor disabled people or poor pensioners. We need to have a mission to tackle all poverty. End of.”
Treasury Faces Budget Headache
The collapse of Labour’s welfare reforms leaves Chancellor Rachel Reeves facing difficult choices ahead of the autumn Budget. The £5 billion hole created by the U-turns on PIP reforms and other welfare measures will need to be filled through alternative savings or tax rises.
Reeves warned MPs on Thursday there “is a cost” to the welfare changes voted for in Parliament that would be reflected in the Budget. MPs will need to acknowledge that there is a financial cost to not approving the welfare changes,” a source close to the chancellor said.
The government’s child poverty strategy, which was expected to be published in the spring, has been delayed until autumn. Labour’s Child Poverty Taskforce, headed by Liz Kendall and Bridget Phillipson, was due to report recommendations that many expected would include scrapping the cap.
Public Opinion Divided
Polling shows the two-child cap remains popular with voters, with around 60 per cent supporting it according to YouGov. Support crosses party lines, with 50 per cent of Labour voters backing it compared to 38 per cent opposing.
However, younger voters are more divided, with only 32 per cent of 18-24 year olds supporting the cap and 46 per cent opposing it. Older voters are far more likely to favour the policy, with 69 per cent of over-65s wanting it to stay.
The Resolution Foundation, until recently led by new Labour MP Torsten Bell, describes scrapping the cap as “one of the most efficient ways to drive down child poverty rates,” estimating that 490,000 children would be lifted out of poverty.
Winter Fuel Payment Precedent
The decision not to reverse the two-child cap comes despite Labour’s £1.25 billion U-turn on winter fuel payments in June 2025. Following poor local election results partly blamed on the controversial policy, Reeves announced that pensioners with incomes below £35,000 would receive the payment automatically.
That reversal followed widespread criticism after Labour had restricted the payment to only those on pension credit, reducing eligible pensioners from 11.4 million to 1.5 million and saving £1.5 billion annually.
Unite union leader Sharon Graham, who campaigned against the winter fuel cuts, said the government should implement a 1 per cent wealth tax on those with over £4 million in assets, which would raise £25 billion.
What Happens Next
With the two-child benefit cap now set to remain in place, Labour faces continued pressure from backbench MPs and campaign groups. Analysis of official figures shows that ditching the cap would hand thousands of pounds a year in extra benefits to 180,000 large families in which no one goes out to work.
Sir Keir Starmer said on Thursday: “The last Labour government drove down child poverty and it’s one of the proudest things that we did. We’ve got a strategy and a task force working on this and will lay out the details of that.”
I personally don’t think there’s a silver bullet that if you do this one thing, it will deal with child poverty,” the prime minister added, signaling that the cap will remain despite internal party opposition.
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Starmer visits Barrow (2025). Photo by UK Government, via Wikimedia Commons, licensed under Open Government Licence v3.0 (OGL).
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