Blog by Dr Sarah Weakley

While many aspects of First Minister John Swinney’s budget announcement in December 2024 made waves amongst his opponents, few were as surprising as his announcement that the Scottish Government will mitigate the impact of the two-child limit in Universal Credit. The announcement was met warmly by poverty campaigners and advocates as well as academic researchers, who have long advocated for its removal from Universal Credit (UC) policy. Professor Stephen Sinclair, Chair of the Poverty and Inequality Commission noted that the “This is a move in the right direction and, when it is implemented, will benefit many families in Scotland who continue to be trapped in poverty.” The Joseph Rowntree Foundation (JRF) finds that removing the two-child limit would lift 10,000 Scottish children out of poverty.

This bold action signals the seriousness that the First Minister is placing on his government’s priority of ending child poverty – but what is this policy all about, what are its current impacts on families, and why is this a policy proposal that is long overdue?

What is the two-child limit and what are its impacts on families?

The two-child limit is a policy feature of Universal Credit that was implemented in April 2017 as part of a wave of austerity measures by the Conservative government. It prevents families from accessing additional means-tested support for their third or subsequent children. Therefore, a family with three or more children would receive no more than a Universal Credit claimant with two children, amounting to roughly a loss of about £50 a week in support. Following its introduction, the HMRC and the Department for Work and Pensions (DWP) noted that this policy’s aim was to ensure ‘those on benefits face the same financial choices around the number of children they can afford as those supporting themselves through work’.

In the years since its introduction, studies have been able to demonstrate with both quantitative and qualitative data that this policy has not met either of its stated behaviour-changing aims of influencing fertility decisions nor incentivising claimants to work more hours. Rather, ‘its main effect is to push families with three or more children further into poverty’.

Research shows that the overall poverty rate in the UK today is driven in large part by the situation of larger families, and work by JRF showed that the removal of this policy alone would reduce the child poverty rate in 2030/2031 by 1 percentage point. This is because poverty is particularly prevalent for these families, as now 38% of children in large families in Scotland are trapped in poverty. UK-wide research has shown that while incomes of smaller families have not changed drastically in real terms in the last decade, ‘larger families suffered substantial reductions in real incomes across nearly the entire distribution since 2017’ and the losses were regressive – which means the poorest larger households lost out the most.  Notably, income losses for these families were not due to changes in family characteristics (e.g. the number of adults in work) but were rather due to changes in the penalties associated with family characteristics (i.e. the two-child limit). Suggesting that indeed, the limit itself plunged families deeper into poverty.

Who is currently impacted by the two-child limit in Scotland and what’s the forecast for growth?

Across the UK, nearly 1 in 10 children are impacted by the two-child limit, roughly 1.5 million children (IFS 2024). In Scotland, the Scottish Fiscal Commission estimates that around 32,000 children in Scotland would have been eligible for the proposed mitigation in April 2024. This is forecasted to increase to 49,000 children by 2029-2030.

Mitigating the two-child limit for the families in Scotland who are eligible is a cost that will be burdened wholly by the Scottish Government. This is not without precedent, as the Scottish Government already mitigates other aspects of UK social security policy such as the under-occupancy charge (i.e. the ‘bedroom tax’). Once the mitigation policy is implemented, payment to families is assumed to be the same rate as the UC child element - £287.92 in 2024-2025 and uprated with CPI inflation annually. The Scottish Fiscal Commission estimates that the mitigation payments will cost £155 million in 2026-2027 and rise to £198 million in 2029-2030. This adds to existing social security spending that currently outstrips the block grant adjustment funding received from the UK Government. In 2029-2030 devolved social security is projected to cost £1.7 billion more than the block grant adjustment funding.

Mitigating the two child limit accounts for just under 9% of the projected social security overspend. The Poverty and Inequality Commission has called for new ways to use tax policy to reduce poverty and inequality that can help fund this spending, including through addressing a council tax system that is not fit for purpose.

While this cost is not trivial, policymakers cannot deny the considerable evidence of this policy’s resounding negative impacts on families, no evidence on meeting stated behaviour change aims, and recent evidence that shows the impact the scrapping of this single policy will have on reducing the poverty rate. Rarely in policy research do we find such consensus on the need for a policy decision to be taken. For those following the evidence, mitigating this policy (if the UK government will not scrap the policy at source) is a small price to pay to redress a punitive policy for the poorest families.

What next?

To get close to meeting the Scottish Government’s Child Poverty Strategy 2030 targets, action is needed on all three drivers of poverty: income from social security, household costs and income from employment. Action on social security income has been the focus of the Scottish Government as of late (e.g. the Scottish Child Payment) and critics are rightfully seeking more progress on policies and programmes for the other two drivers. While we know that mitigation of the two-child limit is not a silver bullet for changing the realities of families living in poverty, we also know that for those families we cannot afford to wait when progress is possible.

Author

Dr Sarah Weakley is a Research and Knowledge Exchange Lead at the College of Social Sciences Research Support Office and Centre for Public Policy Affiliate. She has a PhD in Social Policy and a Masters in Public Administration, with research focussed on poverty and social security.

Preview photo by Margaret Weir on Unsplash

First published: 20 February 2025

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