Two-child benefits cap: how much will we save exactly?

26 October 2012

"Should families expect never ending amounts of money for every child… when working households must make tough choices about what they can afford?" Iain Duncan Smith, Cambridge Public Policy lecture: Reforming welfare, transforming lives, October 25, 2012

"Some 3.2 million children live in families with three or more children and a "two child" benefits policy could save about £200m." Andrew Grice in the Independent.

"Child tax credits are means-tested but the Children's Society calculates that the saving on them, if they were restricted to taking a maximum of two children into account, would be about £3.5bn a year. Savings on child benefit, if reshaped in a similar way, would yield up to £1bn. This is big money." The Guadian, October 25, 2012

NB: This article was updated on Novemer 28, 2012

Every year the state spends £11.2 billion in child benefits and £22.9 billion in tax credits for children. With a £18 billion cut from the welfare budget already under way, the government is looking for ways to save an additional £10 billion in welfare spending. Cue Iain Duncan Smith's proposal to introduce a two-child limit on the amount of tax credits and benefits a family is entitled to receive.

Now, before we factcheck the Independent's and the Guardian's claims, let's first look at what information we can get hold of from official records. 

Child benefits are handed out to those responsible for children under the age of 16 and engaged in full time education. Each family gets £20.30 in child benefits for their eldest or only child, and an additional £13.40 for each other child. This means families with two kids would get £33.70 per week, or £1,752.40 per year. 

According to the HM Revenue & Customs's annual child benefits statistics, as of August 31st 2011 the total yearly spending on child benefits was £12 billion. 7.88 million families, responsible for 13.72 million children, claim child benefits, and out of these, 1.2 million had more than two children. 

Iain Duncan Smith's proposed policy was first introduced, in wide terms, on October 25 at a lecture before the Cambridge Public Policy department. Since then, journalists and policy analysts have interpreted his words in different ways. 

The Independent reported that this move would save the government a scant £200 million, but provided no source for this estimate. Andrew Grice, quoted above, claimed the proposed policy would impact 3.2 million children, James Browne of the Institute of Fiscal Studies was quoted in the same paper - indeed in the same page - as saying the policy would only impact children in workless households.

"The government seems to be suggesting that changes would not affect existing claimants unless they have more children," he writes, and goes on to say "Each year only about 35,000 workless families who already have at least two children have an additional child."  

James Browne told Full Fact that he also came to the conclusion that the policy would save roughly £200 million. 

The Guardian quoted an entirely different estimate - £1 billion - which they attributed to the Children's Society. We got in touch with the Children's Society who said that if the policy was applied to all current claimants - both working and workless households - and their existing children, it would save the government £1.1 billion. 

A spokesperson for the Children's Society told us:

"The impact of limiting child benefits to the first two children in a household would depend on the implementation. Our estimates suggest that if you capped Child Benefit and Child Tax Credit - the two key benefits paid per child — the annual savings would be in the region of £3.5 billion and £1.1 billion respectively once fully implemented. Notably the vast majority of families affected would be working families.  If you limited the policy to out of work households, the savings would be considerably lower."

However, because the details of the policy have yet to be officialised, it's impossible to assess who is right if even the DWP won't confirm who exactly will be subject to the benefit cap. 

The BBC attributes the £200m claim to Nick Robinsonwho in turn says "officials in the Department for Work and Pensions" came up with the savings estimate. 

The Department for Work and Pensions (DWP) have however denied they have come up with any estimates on the exact saving. Indeed, a spokesperson for the DWP has said they have not released any official details on the proposed policy, including who it may apply to. It is still not entirely clear, in fact, whether the two-child benefit cap will apply to all families or just workless families. 

A spokesperson for the DWP told us that the policy was "not necessarily about savings," but was thought out because the average British family has 1.89 children. "It is about embedding in the welfare state the same choices and considerations that people outside of welfare have to make - hence things like moving to monthly payments of benefits, housing benefit changes, etc.", the spokesperson added. 

That of course does not answer our question. Most analysts, however, seems to agree that the Secretary of State for Work and Pensions is looking into curbing benefits for new claimants, not existing ones. 

Full Fact will be following this up with a Freedom of Information request to the DWP to see if there is any additional information on this policy and its projected savings. 


Flickr image courtesy of  Dave Traynor

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