Keir Starmer has told cabinet ministers that he intends to scrap the two-child benefit cap and has asked the Treasury to identify how the policy could be funded, as Labour faces rising internal pressure over welfare reforms.
With a potential backbench rebellion looming, the prime minister has privately made clear that he sees the cap’s removal as essential to reducing child poverty. One minister said: “Keir wants to end the two-child cap – he thinks it’s the right thing to do. It’s the best and most cost-effective way to reduce child poverty. The alternatives cost more and are less effective.”
Abolishing the policy would cost an estimated £3.5bn a year and would mark Labour’s second major welfare U-turn following last week’s reversal on winter fuel allowance changes.
Starmer’s position is being viewed as a significant win for Liz Kendall, the work and pensions secretary, and Bridget Phillipson, the education secretary, who have been pushing for the cap’s removal as the centrepiece of the government’s child poverty strategy. They are backed by health secretary Wes Streeting and deputy prime minister Angela Rayner, amid fears Labour could otherwise oversee the worst levels of child poverty on record.
The child poverty plan, originally due in the spring, has been delayed until autumn. Whitehall sources say the extra time is needed to incorporate any benefit changes and provide fully costed proposals in the budget.
Some measures will be announced before summer, and sources suggest a commitment to ending the cap is likely, positioned as part of a “moral mission” rather than an austerity-driven reform. Tensions within the party have grown, with dozens of Labour MPs threatening to rebel over wider changes to disability benefits.
Chancellor Rachel Reeves has expressed concern about the financial impact of scrapping the cap at a time of severe fiscal pressure. However, ministers believe Starmer is becoming increasingly assertive. One senior figure said: “Keir is becoming more assertive with the Treasury. You can see that with the winter fuel allowance. He is more determined to drive through the things he wants.”
One option being discussed in government is to fund the policy through a levy on online gambling companies, which are already the subject of a Treasury review.
A Treasury source confirmed child poverty was “a very important part” of the chancellor’s agenda, “but she can’t commit to something without saying where the money is going to come from.”
Speculation that the two-child limit might be modified rather than abolished—by raising the limit to three children or exempting certain groups—appears unlikely. A minister said: “There’s no point just tweaking it, that doesn’t solve the problem. You need to scrap it. If we don’t do that the analysis is that child poverty will go up.”
The cap, introduced by the Conservatives in 2017, prevents parents from claiming child tax credit or universal credit for more than two children.
The Resolution Foundation has warned that child poverty will rise from 4.5 million to 4.8 million by 2029–30 without reversing the policy. More than a third of children—and half of those in large families—would be living in poverty by the next general election. Scrapping the cap would lift 470,000 children out of poverty, according to the think tank.
Torsten Bell, its former chief executive and long-time critic of the policy, is now a minister in the Treasury and the Department for Work and Pensions.
Former prime minister Gordon Brown recently urged Starmer to abolish the “cruel” limit, saying it treats third children as “second-class citizens”. He has also met the prime minister to argue his case.
Despite reports suggesting tension with Starmer’s chief of staff, Morgan McSweeney, senior figures say momentum in No 10 is shifting toward full abolition. Rachel Statham, Starmer’s adviser on children and young people, previously called for the “punitive” cap to be scrapped during her time at the Institute for Public Policy Research.
A No 10 spokesperson confirmed the policy remains under active consideration, saying the prime minister had insisted that scrapping the cap “remains on the table”.
Ending the cap would represent a major reversal for Starmer. Last year, seven Labour MPs lost the whip for voting against the government over the issue.
About 1.6 million children are currently affected by the two-child limit, and more than 100 are pushed into poverty every day because of it, according to the Child Poverty Action Group.
