UK Government scraps two-child limit amid tax-raising budget

The UK Government will scrap the two-child cap on benefits from April next year, the chancellor has confirmed.

Chancellor Rachel Reeves also said the Scottish Government would receive an additional £820m over the period of the spending review.

Extra cash for Grangemouth was announced, with £14m to be invested to support low carbon technology at the site, as was £20m apiece for Inchgreen Marine Park in Inverclyde and Kirkcaldy town centre.

But the SNP said the announcement will do nothing to help families “struggling from payday to payday”.

Delivering her second budget, Reeves said the removal of the two-child cap would lift 450,000 children out of poverty and, combined with other measures, would result in the biggest reduction in child poverty on record.

The decision has been welcomed by campaigners, who say it will be “transformational for children”.

Labour has been under pressure to abolish the policy since it entered government last year, including by several of its own MPs. Ministers previously said they were unable to take action on cost grounds.

Reeves said on Wednesday that the plan had been “fully costed and fully funded”.  She added: “We on this side of the house do not believe that the solution to a broken welfare system is to punish the most vulnerable. We are lifting 450,000 children out of poverty with the end of the two-child limit.”

The Scottish Government announced last year that it would move to mitigate the two-child cap from April if the UK Government did not move sooner.

It will no longer need to find the £155m the Scottish Fiscal Commission estimated would be needed to deliver the new benefit.

The Child Poverty Action Group in Scotland is now urging Scottish ministers to use the cash “freed up” by the UK Government’s decision to “further boost social security”.

John Dickie, CPAG Scotland’s director, said: “The UK Chancellor’s decision to scrap the cruel two-child limit is absolutely the right thing to do… [Scottish] ministers have already promised to use this money to tackle child poverty and we urge them to use it to further boost Scottish social security for families, for example by increasing the Scottish Child Payment toward the £40 a week that is needed by the end of this parliament.

“It is vital that the money freed up today is spent on increased social security support and that it adds to existing commitments to fund the childcare, whole family support, employment and housing that are also crucial to families.”

The removal of the cap and other welfare announcements mean welfare spending will increase by £4.7bn in 2026-27, according to the Office for Budget Responsibility (OBR).

But the forecasting body said the cost of these measures was “more than offset” by tax changes.

These include alterations to corporation tax, increases to gambling duties, introducing a mileage-based change on electric vehicles, and increasing tax rates on dividends, property and savings income.

The chancellor moved to freeze personal tax and employed National Insurance threshold for three years, and as expected will make no changes to income tax thresholds.

A £2,000 annual cap on salary sacrifice schemes into pensions will be introduced, while the government will increase the new and basic state pension.

Reeves also confirmed the Eco Energy Scheme would be scrapped, which she said would result in a £150 cut from the average household energy bill from April.

SNP Westminster leader Stephen Flynn accused the government of forcing families to “pay the price for Labour Party failure with billions of pounds of cuts, tax hikes and rising costs”.

He said: “Voters were promised things would get better but under the Labour Party they got worse – with higher household bills, unemployment at a four-year high, economic growth slashed, public finances in a mess – and hard-pressed families struggling from payday to payday.

“Nothing announced today changes that – and there is a real danger the anti-growth measures in this budget will extend the UK's doom loop and lead to another crisis budget next year.”

Ahead of Reeves’ statement to parliament, the OBR accidentally published the budget on its website. It has apologised for the error and confirmed an investigation had been launched.

But deputy speaker Nus Ghani said the publication, combined with months of leaks about the contents of the budget, was a “supreme discourtesy” to MPs. “This all falls short of standards that the House expects,” she said.

Reeves described the OBR’s mistake as “deeply disappointing and a serious error on their part”.