Economic Tensions Rise as Labour Faces Internal Challenge Over Two-Child Benefit Cap

The Treasury is cautioning about potential economic repercussions in response to increasing calls to abolish the two-child limit on benefits. Frontbench MP James Murray emphasized the importance of financial prudence as several dissenting backbenchers gear up to propose a modification to the King’s Speech, aiming to eliminate the contentious rule.

Sunday, 21 July 2024, 16:12

A Treasury official has cautioned that unfinanced expenditure pledges can destabilize the economy. This statement came as he supported the continuation of the two-child benefit limit, which is emerging as a significant initial challenge for the new Labour administration.

During his appearance on Sky News' Sunday Morning With Trevor Phillips, James Murray discussed the significant market instability caused by Liz Truss’s 2022 mini-budget amidst growing tensions at Westminster, where there were increasing calls from backbenchers to abandon the contentious policy.

A group of dissenting Labour MPs are preparing to propose a change to the King's Speech, advocating for the removal of a certain limit.

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The rule, established by the Conservative Party in 2017, limits child tax credit and universal credit benefits to only the first two children in many families.

Critics contend that it is exacerbating the increase in child poverty, as families with more children miss out on approximately £3,200 annually for each additional child.

They highlight Labour's pledge to maintain the state pension triple lock, ensuring annual increases are aligned with inflation, wages, or a minimum of 2.5%, whichever is greatest. This promise carries an extra financial burden of £11 billion annually.

According to Save the Children, removing the cap could lift half a million children out of relative poverty.

Last month, prior to his appointment as prime minister, Sir Keir Starmer expressed his desire to eliminate the two-child limit if circumstances were perfect, yet he emphasized that currently, there are insufficient resources to implement such a change.

The government has unveiled plans to create a taskforce aimed at formulating a strategy to tackle child poverty. This initiative will be spearheaded by Work and Pensions Secretary Liz Kendall and Education Secretary Bridget Phillipson.

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The Resolution Foundation has indicated that removing the two-child cap could lead to government expenses ranging from £2.5 billion to £3.6 billion in the fiscal year 2024/25. However, they noted that these costs are minimal when compared to the damage inflicted by the policy.

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Under the new administration, there have been further demands for public funding, including proposed significant salary increases for teachers and approximately 1.3 million NHS employees, surpassing the rate of inflation.

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Mr. Murray stated, "We will not make any commitments without being able to specify the funding sources."

"It's evident that every Labour MP believes that an excessive number of children are suffering due to poverty, which negatively impacts their future opportunities. No child deserves to live in poverty, which is why the prime minister has established a taskforce to immediately formulate a strategy to tackle child poverty."

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He emphasized, "Our platform was explicit about only making promises that we could account for financially, specifying funding sources."

"In fact, when you begin to make financial commitments without the necessary funding, it can lead to economic collapse. We've witnessed this during the tenure of the previous administration.

Should the economy falter, the resultant instability impacts everyone, yet it disproportionately affects those least equipped to handle it, notably children and their families.

"Economic and fiscal responsibility are not just desirable, they are absolutely crucial to our governance approach."

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