In a significant move, Rachel Reeves is set to implement tax increases today aimed at financing substantial financial aid for some of Britain’s largest jobless families. This decision is part of a broader budgetary strategy that is likely to spark debate across the nation.
According to government data, the centerpiece of this plan is the elimination of the two-child benefit cap. This change will provide more than £14,000 annually to around 18,000 low-income families with six or more children, marking a substantial shift in welfare policy.
However, a recent study conducted by the Adam Smith Institute has highlighted that the average taxpayer will contribute nearly £2,000 this year to support the burgeoning benefits expenditure, a statistic that underscores the financial weight of this policy shift.
Reeves is expected to announce an increase in taxes amounting to approximately £25 billion. She attributes this fiscal adjustment to the economic disruptions caused by the policies of the Conservatives, the aftermath of Brexit, and the tariffs imposed during Donald Trump’s presidency.
In tandem with the tax hike, Reeves plans to introduce measures that will further expand the welfare budget, notably by abolishing the two-child cap. This particular policy change is projected to cost £3.5 billion annually.
The existing benefit cap has been a longstanding policy that restricts means-tested benefits, such as universal credit and child tax credits, to the first two children in a family. This limitation has resulted in a typical loss of £3,455 in benefits for each additional child in affected families.
Figures produced by the Department for Work and Pensions (DWP) show that 470,000 families are now affected by the policy.
About 59 per cent have at least one adult in work, leaving almost 200,000 in which no-one has a job.
Rachel Reeves putting the finishing touches yesterday to her make-or-break Budget
Critics of the two-child cap say it penalises children unfairly and the Chancellor is said to be removing the cap in the Budget
Almost two-thirds (297,000) have three children, while a quarter (117,000) have four. A further 37,000 affected families have five children, while 18,260 are listed as having ‘six or more’.
Tory policy chief Neil O’Brien said those with six or more children were in line for a windfall worth more than £14,000 a year.
He added: ‘Last year the Chancellor said lifting the cap was unaffordable but Labour MPs have worked out she can be pushed around.
‘It means you are going to see some families receiving very large sums from the taxpayer, while the Chancellor is saying it is necessary to raise taxes on everyone else.
‘It blows a hole in her argument that she has no choice but to raise taxes because of Brexit or the Tories or the Battle of Hastings. In fact, it shows she is quite happy to raise taxes to spend billions more on benefits.’
Critics of the cap claim it has worsened child poverty, and scrapping it has become an article of faith for many Labour MPs. But the potential rise in benefits is so large that some could be left with little incentive to work.
Prime Minister and Chancellor chat outside the cabinet room before a budget meeting
Tory welfare chief Helen Whately said scrapping the cap could give some big families ‘another incentive to sign on for sickness benefits’
At present, a single parent with three children is eligible for a total of £20,978. When the cap is lifted this could rise to £24,491 – well in excess of the £21,807 take-home pay of someone working a 40-hour week on the minimum wage.
Meanwhile, analysis by the Adam Smith Institute found that workers earning the median salary will spend more on welfare – £1,970 – than any other item of public spending, as increasing numbers receive sickness benefits under Labour. Employees on £39,039 will also contribute more than £1,000 towards the running of the NHS this year.
The think-tank estimates that another £659 of the average earner’s income tax and National Insurance contributions will go on debt interest payments.
