The first real test of Labour’s hardline approach to public spending has surfaced within a week of the party taking office – and it is a big one.
The issue is child poverty and in particular the two-child benefit limit introduced by the Conservatives in April 2017. This prevents households from claiming universal credit or child tax credit for a third or any subsequent child born after this date.
For good reason, the two-child limit is loathed by many Labour MPs because while having no impact on the number of children families have, it has had the predictable result of increasing poverty.
The Resolution Foundation thinktank says the number of families affected by the policy has increased from 70,000 to 450,000 in the past six years and that a third of its impact is yet to come.
The Child Poverty Action Group (CPAG) says the two-child limit can cost households up to £3,455 a year – a massive hit to family budgets. Child poverty is at its highest ever level, and Labour says it has “an ambitious strategy” for reducing it.
Currently, this ambitious strategy does not extend to scrapping the two-child benefit cap, even though CPAG says doing so would lift 300,000 children out of poverty at a cost of £1.7bn a year. No other single measure the government could take would be as cost-effective in reducing the number of children living below the breadline.
Labour’s line is that scrapping the two-child limit is something not currently budgeted for in its programme, so abolition will have to wait until there is money to spare. The argument is that this would open the floodgates to a host of other demands.
This might make short-term sense but it is still misguided. The two-child cap will not survive five years of a Labour government with such a commanding parliamentary majority, and so it is a question of when, not if, the policy originally brought in by George Osborne will be canned.
Delaying that decision condemns more children to a life of misery and want. There is an economic case for a more generous approach to welfare – poor families tend to spend more of their income than rich families – but there is also a moral dimension. Needlessly pushing more children into hardship is plain wrong.
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Finally, £1.7bn is a tiny sum in the context of a £2.7tn economy, and there are plenty of ways the chancellor, Rachel Reeves, could find it without any difficulty. As the tax expert Richard Murphy has shown, taxing capital gains at the same rate as income would net the Treasury £12bn a year, while restricting tax relief on pensions to the basic rate of income tax would raise a further £14.5bn. Removing the losses the Bank of England makes on its gilt holdings from the way the government’s debt rule is calculated would raise an estimated £20bn, according to the consultancy Oxford Economics.
Labour has been keen to do nothing – and say nothing – that might rattle the financial markets, and a degree of prudence makes sense. There are, though, limits to that approach.
Reeves has made much of how Britain is living in an age of insecurity, and you don’t get much more insecure than a family suffering a benefit cut in excess of £3,000 a year. The two-child cap should go without delay.
