Welfare reform: annual report 2019

8. Annex B – The methodology used in our two-child limit estimates

The estimates provided in our analysis represent the long-term effects of the two-child limit policy, i.e. once the policy affects all UC claimant households with third and subsequent children who do not meet the exemption criteria. At this point, the policy could reduce welfare spending by up to £120 million, and affect up to 40,000 households.

The modelling uses the following assumptions:

• Analysis is based on data from the 2016/17 Family Resource Survey. 
• The costs and impacts modelled refer to the steady-state, i.e. once the two-child limit applies to all households. Given that only children born on or after 6 April 2017 will be affected by the policy, the policy’s full effect will not be felt until the 2030s.
• It is assumed that UC is fully rolled out and all households who can claim benefits will do so. In reality, however, some households will not claim these benefits. Therefore, the savings and poverty increase resulting from the policy could be lower than estimated.
• Benefit entitlement calculations are based on 2019/20 criteria, and therefore include recent changes to UC work allowances. Any changes in entitlements in later years would affect costs.
• Behavioural responses (e.g. people who choose to have more/less children, or people who choose to change their hours of work due to changes in benefit policy) are not taken into consideration.
• The poverty threshold is not affected by the full rollout, or full absence of the limit. In reality, the existence of the limit may reduce the median income across the UK, and therefore also reduce the poverty threshold. However, because this analysis was conducted at Scotland level, we were unable to model to effects on UK median income, which is used as the basis for poverty rates.