Sir Keir Starmer will not scrap the two-child benefit cap after his U-turn on welfare cuts left a £5bn hole in Labour’s spending plans.
Senior Labour figures have reportedly warned that tax hikes are on the horizon after the benefits climbdown, with a change in the controversial cap, introduced when George Osborne was chancellor, now thought to be off the table.
“My assessment is that is now dead in the water,” a No 10 source told The Sunday Times.
A source close to the chancellor added: “MPs will need to acknowledge that there is a financial cost to not approving the welfare changes, whether that’s tax rises or not scrapping the two-child benefit cap. They need to understand the trade-offs.”
The prospect of Labour keeping the two-child benefit cap in place will provoke fresh unrest among Labour backbenchers, who have a taste for rebellion after forcing Sir Keir’s hand on cuts to the personal independence payment (Pip), the main disability benefit.
Sir Keir is believed to have told his cabinet he wants to scrap the two-child cap – first imposed by Osborne in 2015.
Critics of the policy, which restricts parents from claiming certain benefits for more than two of their children, say it pushes children into poverty. Charities frequently cite the £3.4bn move as one of the most cost effective ways of alleviating child poverty.
Asked on Thursday whether he still wanted to scrap the two-child cap, Sir Keir said: “The last Labour government drove down child poverty and it’s one of the proudest things that we did.
“Sadly, the last government allowed child poverty to go back up again.
“I’m determined that this government will drive it down, just as the last Labour government did.
“We’ve got a strategy and a task force working on this and will lay out the details of that. I personally don’t think there’s a silver bullet that if you do this one thing, it will deal with child poverty.” Labour’s Child Poverty Taskforce, headed by work and pensions secretary Liz Kendall and education secretary Bridget Phillipson, was due to report in the spring but was delayed until the autumn.
Pressure on the PM over the two-child benefit cap will likely increase in the run up to this autumn’s Budget, in which Rachel Reeves has been warned she must raise taxes or put Labour’s agenda at risk.
Jim O’Neill, a former Goldman Sachs chief turned Treasury minister who quit the Conservatives and later advised Ms Reeves, said she faces no choice but to abandon key parts of her economic policy – including her commitment not to raise income tax, national insurance contributions for employees or VAT.
“Without changing some of the big taxes, welfare and pensions, they [Labour] can’t commit to things like Northern Powerhouse Rail, small modular nuclear reactors, and various other things that will make an investment and growth difference,” he told The Independent.
