Welfare reform: annual report 2019

5. The two-child limit

We have also examined the steady-state effects of the two-child limit on poverty rates and welfare spending in Scotland. Our analysis shows that:

• The two-child limit could reduce social security spending by up to £120 million per year in the long-term.
• Up to 20,000 children could be brought into relative poverty after housing costs.
• Around 40,000 households could lose entitlement for third or subsequent children.

The two-child limit only applies to children born on or after 6 April 2017. Currently only a small proportion of children fit this criterion, however with time, a greater proportion will be born after April 2017. The estimates above represent the long-term cost of the policy, once all children who are affected in principle by the policy come into scope.^[31] Annex B provides more details on modelling assumptions.

In January, the UK Secretary of State for Work and Pensions confirmed^[32] that the two-child limit would no longer apply to any children born before 6 April 2017. DWP estimates indicate that this change “will benefit around 15,000 families”. Previous plans were that third or subsequent children born before that date could be affected by the limit when their parents made a new claim to UC. 

Based on this figure, we estimate that around 900 Scottish households will benefit from this change.^[33] As mentioned above, our analysis suggests around 40,000 households will be affected by the two-child limit in the long-term. Therefore, the number of children exempted due to this change represents around 2% of Scottish households who will be affected by the limit in the long-term. 

Two-child limit statistics show that in the period up to April 2019, 8,540 households across Scotland were denied entitlement for a third or subsequent child.^[34] A further 480 households would have been denied entitlement, but were allowed to claim because of their particular circumstances, referred to by the DWP as an exception. Table 4 breaks down these excepted households by the reason for their exception. 

Table 4 – The number of Scottish households excepted from the two-child limit policy, by reason for exception

UK-wide statistics (which are not available at Scotland level) show that a total of 161,000 households were affected in principle by the two-child limit as of April 2019. Given that 848,000 UK households with three or more children claimed Child Tax Credit or UC in April 2019, this suggests that the limit has gone from affecting 8% of households claiming benefits for three or more children in April 2018 to 19% one year later. Further detail on the characteristics of the households affected by the limit is also provided at the UK level. These show that among all households who were affected in principle by the policy:

40% were headed by a lone parent;

59% had at least one partner in work; and

almost half (58%) had three children, while 27% had four, and 16% had five children or more.

Assuming these shares remain the same in Scotland then by April 2019 the households denied entitlement in Scotland would include around:

• 3,400 lone parent households;
• 5,000 households with at least one parent in work; and
• 4,900 households with three children, 2,300 with four, and 1,300 with five or more children.