Friday, October 24, 2025
The most cost-effective ways to reduce child poverty
A full reversal of the cap, introduced by the Conservatives in 2017, and which restricts universal or child tax credit to the first two children in most households, is estimated by the IFS to cost around £3.6 billion and lift some 630,000 children out of poverty:
The IFS also outlined options for a partial reversal, allowing the government to avoid the full cost by prioritising specific groups. Rachel Reeves has faced increasing calls to lift the cap.
Exempting working families from the limit would reduce the bill to £2.6 billion and reduce child poverty by 410,000.
A payment for third and subsequent children at half the rate paid for the first two would cost around £1.8 billion.
Tom Wernham, a senior research economist at the IFS, said: “Reversing the two-child limit is one of the most cost-effective options the government has to achieve a quick reduction in child poverty.
“There are ways to partially undo the policy that would cost less than the full £3.6 billion needed for its full removal.”
He said the government must ultimately decide who it wants to help and what it wants the benefit system to do.
“It could target support on the youngest children, or strengthen work incentives by lifting the limit for families in work, or spread the extra cash more thinly but across a wider group,” he said.
“None of these options would be as costly as full reversal, but nor would they do as much to reduce poverty.”
It comes as part of the IFS’s annual “green budget”, setting out the challenges facing the Chancellor ahead of the Budget each year.
Let's hope that the chancellor takes note.
