Workless households will be handed a £6,000 annual benefits boost when Labour lifts the two-child cap on Monday, analysis has shown.
More than 186,000 families without any working parents will receive thousands in extra benefits as the cap is lifted, after pressure on Sir Keir Starmer from Labour backbenchers.
The policy, which will cost an estimated £3.5bn, will be funded by tax increases on middle-class families, including new levies taking effect on Monday, adding hundreds of pounds to household bills and leaving workers worse off.
Council tax and utility bills are to rise sharply on Monday, while stealth income taxes introduced by Rachel Reeves, the Chancellor, could see basic rate taxpayers paying up to £700 more to the Treasury.
The tax increases will help the Government pay for scrapping the two-child cap, which it says will lift 450,000 children out of poverty.
But Kemi Badenoch, the Conservative leader, said it amounted to “another handout to those on benefits”.
The benefits boost amounts to almost £1bn, with a household of two unemployed adults and three children set to receive a 20 per cent rise of £6,400 a year, according to Tory analysis.
Sir Keir had pledged to bring down Britain’s welfare bill, which is set to increase to £407bn, or 11.2 per cent of GDP by 2030, by cutting disability and long-term sickness benefits.
But the plans were scuppered by a rebellion from Labour backbenchers, who threatened to defeat the Government in a Commons vote if they proceeded with the policy.
The Government has pledged to review benefits policies again with input from disability groups and will announce new plans later this year.
Sir Keir was also forced by Left-wing MPs to end the Conservative-era policy of capping Universal Credit and tax credit claims to a couple’s first two children, known as the two-child cap. The decision will cost taxpayers between £2.3bn and £3.4bn per year.
Analysis of figures from the Department of Work & Pensions by the Conservatives found that 186,590 households currently had no one in employment and had more than two children.
Lifting the cap means these households will now receive benefits for a total of 249,140 additional children, costing more than £908m at the £3,647-a-year rate.
The cap was introduced in 2017 under the Conservatives and the party has said it will restore it to boost defence spending.
“While working people struggle with rising fuel costs and food prices, Keir Starmer is giving another handout to those on benefits,” Mrs Badenoch said.
“The Conservatives believe in fairness and that those on welfare should have to make the same choices about their family as those who aren’t.”
Sir Mel Stride said we did not need ‘yet more taxes on working people’ – Ian Forsyth/Getty
Writing for The Telegraph, Sir Mel Stride, the shadow chancellor, said scrapping the two-child cap was “a serious mistake and one the country cannot afford”.
“The country does not need competing promises of higher spending paid for by yet more taxes on working people,” he said.
“It needs honesty about the choices we face, and an understanding of what is fair.”
The benefits boost comes as households face an average hit of at least £224 to their finances as tax increases and bills rise at the start of the new financial year.
Council taxes, utilities and postage costs will all increase on Monday, putting additional pressure on families coping with soaring petrol prices.
The majority of councils in England are putting taxes up by the maximum 4.99 per cent, costing an average household in a band D property an extra £109 a year, while some have been given permission to increase taxes by 8.99 per cent.
Water bills are increasing by an average of £33 a year, while phone and broadband bills are increasing by £27.60 and £39.60 a year respectively, according to comparison site Uswitch, which has called the month “Awful April”.
TV licences and car tax are going up by £5.50 and £5 a year, while the price of stamps is climbing by 10p for first class and 4p for second class.
Energy prices have fallen because of quarterly price caps set before the war in Iran, but are expected to rise sharply in the summer.
The average bill fell by 7 per cent on April 1, equivalent to £117 a year, but is expected to rise in July by £288 a year.
Stealth taxes will also see workers pay an increasing slice of their payslips to the Treasury, with income tax thresholds frozen for the fifth consecutive year.
While thresholds have typically risen with inflation, they last increased in 2021 and are not due to rise again until 2031, meaning millions of workers have been pushed into higher tax bands.
According to AJ Bell, basic rate taxpayers will be paying up to £700 more in tax this year, while higher-rate taxpayers will pay £3,500.
Labour has given up trying to be fair on those who pay taxes
By Mel Stride
Labour’s decision to scrap the two-child benefit cap is a serious mistake and one the country cannot afford.
At a time when Britain faces a sustained cost-of-living challenge, families across the country are making difficult, often painful decisions to balance their budgets. They expect government to show the same discipline. Instead, Keir Starmer and Rachel Reeves have chosen to increase welfare spending by billions, and to tax working people to pay for it.
The choice by Starmer and Reeves marks a significant shift in the principles that underpin our welfare system.
The two-child cap, introduced by Conservatives in 2017, reflected a straightforward and widely understood idea: that families should make choices based on what they can afford, and that the state should mirror that reality. It ensured the system remained fair, both to those who rely on support and to those who fund it through their taxes. Labour has now chosen to abandon that balance.
Sir Keir Starmer and Rachel Reeves are making working people pay for the increase in welfare spending, says Sir Mel – Reuters
Under Labour’s plan, families on benefits can now receive thousands more for every extra child. For bigger households, that could mean well over £10,000 more a year, at a cost of around £3.5bn each year.
That comes on top of already high levels of public spending and more than £100bn in debt interest – double the defence budget. Given the strain on the public finances and the fact taxes are rising to record highs to pay for this, such a commitment raises serious questions about sustainability. It also raises questions of fairness.
Working households do not receive more money when their family grows. They adapt. They plan. They make trade-offs. It is reasonable to expect that the welfare system reflects those same constraints, rather than insulating some from them at the expense of others.
This is not about withdrawing support from those in need. Britain already has a compassionate system that protects the most vulnerable. But compassion must be matched with responsibility. Without that balance, public confidence in the system begins to erode.
On top of that, we should all be concerned about how this decision was made.
Before the election, Starmer made clear that the cap would remain. Its removal came about because Labour’s backbenchers have Starmer and Reeves over a barrel, following a slew of disastrous U-turns. A government driven more by internal politics than by a consistent economic strategy is dangerous.
Reform UK has taken every possible different position on the two-child policy. Nigel Farage last year made a speech announcing he wanted to scrap the cap. His Treasury spokesman, Robert Jenrick, voted alongside Labour to lift it just a few months ago. Then they said they only wanted to partially scrap it. And now they claim they would keep it. They may deny it, but Labour and Reform are pushing more welfare spending, with no consideration for the country’s finances.
The Conservative position is different.
We believe in a welfare system that is robust, targeted, and fair – one that supports those who need help while maintaining a clear link between responsibility and support. That is essential not only for fiscal sustainability, but for maintaining public trust.
Restoring the two-child cap would reaffirm an important principle: that support should be delivered in a way that is fair to all and consistent with the realities faced by working families.
The country does not need competing promises of higher spending paid for by yet more taxes on working people. It needs honesty about the choices we face and an understanding of what is fair.
Sir Mel Stride is the shadow chancellor