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17 July 2023

The two-child benefit cap makes the future a luxury

Labour should scrap the welfare limit as a first step to a more family-friendly tax system.

By Henry Hill

George Osborne advanced perhaps the most important argument in favour of the two-child benefit cap. Announcing the policy to limit tax credits and welfare payments after the second child in 2015, he said that it aimed “to ensure that families in receipt of benefits faced the same financial choices about having children as those supporting themselves solely in work”.

This is important not because it explains why the cap, which Keir Starmer has now said a Labour government would keep, was introduced – this is the Treasury we’re talking about, it was to save money – but because it explains why the cap is so persistently popular with the electorate.

It has not, after all, actually worked, at least according to its goal of discouraging households on welfare from having more than two children. Research has shown the effect on fertility has been slight. But it taps into a strong sense among many voters that children are a sort of luxury good: nice if you can afford them, but if you can’t it’s nobody else’s responsibility to help.

Such attitudes gel perfectly with the Treasury view, bluntly expressed to me by a former adviser, that it makes little sense to go to the huge expense of gestating future taxpayers when you can “just import people”. (Of course, many of the voters who take such a stern view about people having children almost certainly tell pollsters they oppose high immigration; clearly not everyone is good at joining dots.) It would surely seem mad, to almost any other society at any other point in history, to view future generations as a disposable luxury. Children are a public good, not least because they will at some point be paying the taxes to fund services for their elders.

A social model dependent on importing hundreds of thousands of people a year is not sustainable, both because of public attitudes and this country’s stubborn refusal to build housing, infrastructure, or any of the other essential supports of a growing population. Nor is it ethical to maintain a system that relies on there always being poorer nations whose skilled professionals and most mobile workers we can skim off to top up the Exchequer and keep British public services ticking over. We need a comprehensive overhaul of the way the tax system handles children – and one that goes much farther than just abolishing the welfare cap.

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Osborne’s dictum about the choices facing working households is right. But we should reverse his Treasury-brained logic, and have a system that makes it easier for all households to have the children they want, when they want.

Recognising parenthood in the tax system is perfectly fair: parents invest a huge amount of time and money raising future workers and taxpayers, a service to all of us. Some of this could be done through tweaks such as putting the tax system on a per-household rather than per-earner basis; this would avoid perverse situations where two households with the same income get different support because in one there is only a single earner, who is thus over a benefit threshold. There are other, more ambitious policies we could look at too that take into account the value of investing in the next generation.

But ultimately, it would mean spending money, and recognising children as a worthwhile long-term investment in Britain’s future.

[See also: Why is Keir Starmer backing the two-child benefit cap?]

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