Two policies to boost family living standards and reduce child poverty

Unless action is taken, projections of disposable income¹ for families with children show them declining by £750 per year on average for couples with children by the end of the parliament. The equivalent figure for lone parents is £780. This Government must find policies that make an immediate difference to family finances. If they fail to, they are likely to face electoral consequences as people who feel economically insecure are more likely to be undecided voters or switch their vote.

New analysis demonstrates the extent to which this decline is being driven by the Conservative-era social security reforms that brought in the two-child limit and benefit cap. Introducing a protected minimum floor in Universal Credit to limit the impact of the benefit cap and removing the two-child limit are policies that will, together, offset or even reverse the projected decline in average living standards for families with children over this parliament. They will also lift 500,000 children out of poverty and reduce the depth of poverty for a further 1 million by the end of the parliament. These policies should be a priority for both the upcoming Budget and child poverty strategy.

The kids are not alright

Projections of average living standards for families with children are worse than any other household type (Figure 1). If these projections become reality, children will have experienced a decade of declining living standards, having already seen living standards fall in the last parliament. 

This fall in average living standards coincided with rising child poverty, with official statistics showing a record 4.5 million children experienced poverty in 2023/4. The experience of poverty has also grown more severe, with 1 million Trussell emergency food parcels provided for children in 2024/25.

Looking ahead, without policy action, we expect couples with children to see a 1.3% fall in disposable income after housing costs on average, while lone parents will see a 3.0% fall on average by the end of this parliament. This equates to being £750 and £780 per year worse off respectively, compared to the start of the parliament.

For a government with a mission to increase opportunity, raise living standards, and reduce child poverty, this is a picture that demands policy action.

Two Conservative-era policies holding back family living standards

New JRF analysis show how key welfare reforms introduced a decade ago are acting as a drag anchor on the living standards of families with children. It is well established that the two-child limit and benefit cap are drivers of child poverty, but our analysis shows how these policies are also hitting average living standards for families with children.

Figure 2 shows the combined impact of 2 policy changes:

1. Removing the two-child limit. This policy limits support for children via Universal Credit to the first 2 children in a family, with current losses of £3,514 per year for each third and subsequent children born after April 2017 (in most cases). The policy disconnects support from need, leaving larger families without adequate support when they hit hard times.
2. Introducing a protected minimum floor in Universal Credit. This would embed for the first time the principle of a safety net below which no one should fall, by limiting the total amount that can be taken from a household’s Universal Credit, whether as the result of debt deductions or the benefit cap. The Government’s fair repayment rate policy has already limited debt deductions, a minimum floor in Universal Credit would extend that principle to the benefit cap too. It would mark a step towards ensuring everyone on Universal Credit can at least afford life’s essentials.

For couples with children these 2 policies together would offset the average decline in living standards by a third (32%). Annual disposable income for this group would fall by £510 instead of £750. For lone parents the impact is far more striking, with the average shifting from sharply falling living standards to a modest improvement (with disposable income growth of £320 or 1.2%). By the end of the parliament, an estimated 2.1 million children would be benefiting from these policies.

Reducing child poverty, supporting children at high risk of hardship

Other JRF research has already shown that introducing a protected minimum floor and removing the two-child limit is a cost-effective way to get child poverty falling this parliament. It also shows these are policies that effectively target support to families with a very high risk of going without at least one basic essential of enough food, a warm home or being able to keep up with household bills.

These policies should be introduced together because the protected minimum floor helps maximise the impact of removing the two-child limit. There are 141,000 children in families impacted by the two-child limit who are also currently benefit capped. These children will not benefit from the removal of the two-child limit unless the benefit cap is also addressed. There are more that would hit the benefit cap if the two-child limit is removed, meaning they do not receive the full benefit of the change. 

Our modelling shows by the end of the parliament, both policies together would lift 500,000 children out of poverty and reduce the depth of poverty by a further 1 million.² The combined cost of both policies is estimated at £3.6 billion in 2029/30.³ Removing the two-child limit alone, without introducing the protected minimum floor, would lift 300,000 children out of poverty, and cost £2.8 billion in 2029/30. The cost of introducing a protected minimum floor on its own is £380 million, the combined cost is £3.6 billion because of the interaction between the 2 policies.

There are multiple tax options that do not break the Government’s manifesto commitments that could be deployed to raise this revenue from those with broad shoulders, while supporting growth by removing some perverse incentives in the tax system. These include narrowing the gap between tax paid on returns from investments compared with earnings from work, for example, though further reforms to capital gains tax, or applying National Insurance Contributions to investment income. 

Budget that boosts family finances supports a good start in life

Introducing a protected minimum floor in Universal Credit and removing the two-child limit will simultaneously improve average living standards for families with children, reduce child poverty, and tackle hardship. This trio of impacts makes these policies an obvious choice for a Government wanting to boost family finances and support more children to get a good start in life. They should be priorities for the Budget and the Government’s child poverty strategy.