Scrapping two-child benefit cap would cost £3.4bn, says IFS

Nigel Farage said last week that he was in favour of scrapping the cap - James Manning/PA

Proposals backed by Nigel Farage to scrap the two-child benefit cap would cost £3.4bn a year, the Institute for Fiscal Studies has said.

Abolishing the limit on the number of children low-income parents can claim Universal Credit for would cost the equivalent of half a penny on income tax, the think tank said.

The Conservatives introduced the cap on child benefits in 2017 as part of plans to save taxpayer cash. However, the policy has been blamed for causing a rise in child poverty and been criticised on both the left and right.

Nigel Farage said during the ITV election debate last week that he was in favour of abolishing it to encourage people to have more children. The Lib Dems and the Greens have also committed in their manifestos to removing the cap.

Neither the Tories nor Labour have said they will abolish the cap in their manifestos.

However, several senior Labour figures have said they would like to see it gone. Shadow paymaster general Jonathan Ashworth has previously described the cap as “heinous” and deputy leader Angela Rayner has branded it “obscene and inhumane” in the past.

Sir Keir Starmer has said he would consider scrapping the cap only once it is affordable.

The controversial policy has fuelled a rise in children in poverty, the IFS said, but would be expensive to repeal.

Tom Waters from the IFS said: “Public finances are pretty tight, and with the big parties promising not to raise any of the major taxes that does make it difficult to pay for new things.”

He added: “If the Government wanted to pay for it, one way would be to increase the base rate of income tax by half a penny.”

The policy only applies to children born after April 5, 2017, meaning growing numbers are caught out by the cap every year.

It currently affects 2 million children. The figure will rise by a further 670,000 by the end of the next Parliament, the IFS said.

Affected families will on average lose £4,300 a year when the policy is fully rolled out, the IFS said, equivalent to a tenth of their income.

Among families with at least three children, the share who live in relative poverty has risen from 35pc in 2014-2015 to 46pc last year, the IFS highlighted.

Over the same time, relative poverty for those with one or two children has fallen, suggesting the introduction of the cap has played a significant role in growing hardship among larger families.

Half a million young people will be living in poverty by the time the policy is fully rolled out, the IFS estimated, equivalent to 4pc of all children.

Mr Waters said that international research suggested helping families by removing the cap could provide a small boost to dwindling birth rates.

Play The Telegraph’s brilliant range of Puzzles - and feel brighter every day. Train your brain and boost your mood with PlusWord, the Mini Crossword, the fearsome Killer Sudoku and even the classic Cryptic Crossword.