How DWP benefit cap will hit families after two-child limit is scrapped in April

Tens of thousands of families will not benefit from the two-child limit being scrapped, according to a new report.

More than two million children will see an increase in payments from the end of the two-child limit in April, which, in theory, ensures that every child in a benefit-claiming family is eligible for financial support.

However, according to inews, the government’s impact assessment of the changes shows that 50,000 families will not see the full increase in payments because they would hit the government’s “benefit cap”. A further 10,000 households will only see a partial increase.

The benefit cap is set at £22,000 and limits the total amount families can claim in benefits.

Rachel Reeves committed to scrapping the two-child limit in her 26 November budget, reversing the policy that blocks families from claiming benefits beyond their first two children.

It means families will now be able to claim universal credit and tax credits for their third, fourth and other children, gaining an average of £5,310 by 2029–30.

Experts at Policy in Practice had previously told Yahoo News that one in five households claiming benefits currently affected by the two-child limit would still be ineligible for the full allowance, but this impact assessment would confirm the government’s own findings.

Here, Yahoo News explains the Department for Work and Pensions’ (DWP) benefit cap, and what it means for families claiming benefits in the UK.

What is the benefit cap?

The benefit cap was introduced by the coalition government in 2013 to limit the total income a working-age household can receive in social security benefits if the household earns below £846 per month.

It means households in London are capped at £25,000 in benefits support, with that figure decreasing to £22,000 outside of the capital.

The then-work and pensions secretary, Iain Duncan Smith, said at the time that the policy would “mean that no family on benefits will earn more than the average salary of a working family”.

The cap applies to a range of welfare benefits that households receive, primarily to limit the total amount of financial support they can get. The benefits affected include:

• Universal credit (UC), including its housing element

• Jobseeker’s allowance (JSA)

• Employment and support allowance (ESA)

• Income support

• Child benefit (if combined with other benefits in the household)

• Child tax credit (if applicable)

• Housing benefit (for those not on UC)

Certain benefits are excluded from the cap, such as:

• Disability living allowance (DLA)

• Personal independence payment (PIP)

• Attendance allowance

• Carer’s allowance

• Maternity allowance

What will happen after the two-child limit?

Lifting the two-child limit in April 2026 will dramatically enhance the lives of hundreds of thousands of impoverished families across the UK.

Charities have estimated that removing the two-child limit will help lift around 450,000 children out of poverty by 2029–30.

It will see around 560,000 families gain an average of £5,310, according to analysis by the Office for Budget Responsibility (OBR).

For those families who cannot receive their full entitlement because of the benefit cap, it’s a different story.

Lifting the benefit cap would also benefit any households that claim benefits, not just those with children.

If the government raised the cap so it is equivalent to the living wage (to £29,000 in London and £26,000 outside of London), Policy in Practice said that this measure would halve the share of households missing out under the two-child limit and the cap, benefiting 95% of children.

The government has been approached for comment.