The news is likely to anger many Labour MPs and will increase the chances of another Commons rebellion over the issue.
The two child benefit limit, introduced under the Conservatives in 2017, has become a totemic issue for some in Labour.
The issue led to the suspension of seven Labour MPs in July after they defied their Government and voted to scrap it.
But since then the country’s fiscal predicament has worsened. Now sources familiar with Government plans have indicated that the long term plans to get rid of the cap have been dropped.
Ministers are not ruling out possible compromises which could see certain exemptions introduced, or even the cap being raised from two to three children.
She dismissed suggestions that it could be increased to cover three children as “offering no real assurance that this issue is being taken seriously”.
“Child poverty is a national disgrace, and the Government must act now. Anything less is indefensible.”
Wider opposition
The opposition indicated by July’s vote went further than the seven suspended MPs. More than 40 additional Labour members abstained.
Some MPs are lobbying the Child Poverty Taskforce – consisting of cross-departmental ministers including Work and Pensions Secretary Liz Kendall, Deputy Prime Minister Angela Rayner and Education Secretary Bridget Phillipson – to consider the impact changing the policy would have on deprivation levels.
Sources said more MPs across the Labour party were pushing for a commitment to scrap the cap entirely, although the exact number of MPs prepared to vote against the Government on this is unclear.
Reports earlier this month suggested ministers could consider lifting the cap for those with children under the age of 5-years-old, or increasing it to allow parents to claim for three children.
Another, senior, government source said they had not personally seen plans to lift the cap for under-5s “written down anywhere” but indicated that ministers were open to the compromise position.
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“If we get everything else in place over the course of this parliament, kids from low income families will be getting two meals a day in school through breakfast clubs and lunches. So I can certainly understand the logic.”
Loyalist MPs
They insisted there is still widespread support across all MPs to scrap the cap entirely – arguing it is an issue that “unites all factions” across the party.
“We are worried the ministers might try and kick it into the long grass to try and buy themselves some time. It’s clear they’d rather not u-turn if they can avoid it, and are keen to be seen to be tough on benefits claimants,” one Labour source said.
MPs are keen to avoid being stung again as they believed happened over the Government’s decision to mean-test the winter fuel payment, and introduce inheritance tax on farmers’ land.
The Labour MP said: “The challenge is how do you do it fast to get money into the pockets of households that are already struggling?
They dismissed talk of a widespread rebellion on the issue – pointing out that the tough approach to expelling former rebels had kept MPs toeing the line in public.
A DWP spokesperson said: “We do not comment on speculation. Our Ministerial Taskforce is exploring all available levers across government to give every child the best start in life as part of our Plan for Change.
“As we fix the foundations of the economy, we’re increasing the Living Wage, uprating benefits and supporting 700,000 of the poorest families with children by introducing a Fair Repayment Rate on Universal Credit deductions to help low-income households and make everyone better off.”
Why the two child cap was introduced
The two-child benefit limit prevents most families from being able to claim means-tested benefits and tax credits for more than two children.
It was implemented by former Conservative chancellor George Osborne during the years of austerity,and was designed to reduce public spending.
According to analysis carried out by the Resolution Foundation last year, the two-child limit results in low-income families losing around £3,200 a year for any third or subsequent child born after April 2017.
Scrapping the policy completely would cost £3.6bn in today’s prices and take 490,000 children out of poverty.
An interim policy of scaling the policy back to a three-child limit (while also scrapping the overall benefit cap on households) would cost around £3bn, but lower the child poverty reduction to 320,000, the think tank said.
Labour’s stance on the policy
Labour had previously been very critical of the two-child limit when it was introduced by the Tories. But in 2023 Sir Keir Starmer confirmed he would not promise to scrap it in his manifesto.
He said the party would “have to make the tough decisions” if it got into power.
Labour then softened its stance and said it would seek to scrap the limit but when the fiscal conditions allow – leaving the door open to it being removed if funds could be found in the Treasury budget.
The decision not to lift it has been very controversial among Labour MPs – and there has been hope that the ministerial taskforce on child poverty would result in confirmation the government still plans to end the policy.
Rebellion
In July, shortly after Labour won the general election, an amendment was tabled to the King’s Speech which called for the two-child limit to be scrapped.
The SNP proposal was backed by Plaid Cymru, the Green Party and other MPs, including now-independent former Labour leader Jeremy Corbyn.
Seven Labour MPs rebelled and voted in favour of it – and more than 40 chose not to vote.
Those who rebelled were immediately suspended. Four have since had the party whip reinstated.
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