Working Tax Credit and Universal Credit: Two-Child Limit

Karen Buck Excerpts

Thursday 21st April 2022 Westminster Hall

[Ms Karen Buck (Westminster North) (Lab)]

It is a pleasure to respond to this debate under your chairmanship, Mr McCabe. I congratulate the hon. Member for Glasgow Central (Alison Thewliss) on introducing it. We have heard some very strong contributions from Members, both speeches and interventions, outlining the community impact of this policy and drawing on personal life experiences, which should inform debates such as this.

Tackling child poverty should be a moral imperative. This policy and others introduced by the Government over the last 12 years are major impediments to our moral imperative to end child poverty. Five years on from the introduction of the two-child limit, we are finally beginning to see the results of that social policy experiment and to be in a position to evaluate whether the policy achieved the purposes set out for it, and whether it had impacts that were foreseeable but were not what the Government explicitly sought to achieve.

As we have heard, as of April last year, 317,500 families and over a million children were affected by the policy. We are now able to understand just what a damaging impact it is having. For a few minutes, I will focus on what the Government sought to achieve and the arguments that were set out when the policy was introduced in the 2015 legislation, and how it has measured up.

Let us look at the Government’s attempt to define the problem. The former DWP Minister, Lord Freud, speaking in the other place, said:

“Currently, the benefit system adjusts automatically to family size, while many families supporting themselves solely through work do not see their budgets rise in the same way when they have more children.”—[Official Report, House of Lords, 7 December 2015; Vol. 767, c. 1328.]

The 2015 Budget said:

“The government believes that those in receipt of tax credits should face the same financial choices about having children as those supporting themselves in work.”

The fact that benefits adjust “automatically to family size”, as Lord Freud said, might be seen as a positive feature of the system rather than a bug, but the phrase that keeps recurring is

“supporting themselves solely through work”,

in contrast with being

“in receipt of tax credits”.

What is meant by supporting oneself “solely through work”? It tells us a great deal about this Government’s attitude towards our society and our welfare state, and their lack of interest in or concern about them. At the time those statements were made, two thirds of families in receipt of tax credits were in work—yes, that goes for families with three or more children as well. It is clear that the Government were predominantly referring to working families when they contrasted them with those

“supporting themselves solely through work”.

The word “solely” is carrying awful lot of weight in that sentence.

I have three points. First, the group that is, in the Government’s view, not supporting itself “solely through work” now comprises 42% of all families with children. That is the share of all families with children that are receiving tax credits or universal credit. How plausible does the Government’s problem definition sound when we are talking about nearly half of all families, rather than an unspecified minority?

Secondly, the Government’s idea of what it means to support oneself solely through work needs examination. Why are tax credits and universal credit the only parts of the welfare state that are singled out? The Office for National Statistics publication “Effects of taxes and benefits on UK household income” shows that most families with children—60%—receive more from the welfare state in cash benefits and the value of services than they pay in taxes. Even after taxes, the value of benefits and services received by families with children in the fifth decile is equivalent to 23% of their market incomes.

Our welfare state redistributes resources towards families with children on a large scale, and that is exactly how it should be. However, it means that most families with children cannot be said to be supporting themselves solely through work, but through a combination of work and state support, because we believe that the state has a role in supporting children. That is absolutely the purpose of the welfare state. This is not a permanent situation for most families. Over the life cycle, most of us move between being net beneficiaries—not supporting ourselves only through work—and net contributors at different points. That is also exactly how the system is supposed to work. That brings me to my third comment on the purported problem that the two-child policy was supposed to address: the Government simply ignored the fact that people move on and off tax credits and universal credit all the time. Instead, they want to treat recipients as an immobile group of benefit recipients, as if it was a permanent characteristic of some people.

Surely, after the huge rise in universal credit claims during the pandemic, even the Government must realise that whether a family will have to rely on social security benefits is something they cannot predict. The most charitable view possible is that the Government got themselves in a muddle by trying to impose a disastrously over-simplified vision on to a reality that it did not fit. A less charitable view is that they decided on a policy for whatever reason—austerity, they would say, although I might be more inclined to believe that it was political opportunism—and then set themselves to manufacturing a rationale for it.

Even if we suspend our disbelief and take the Government’s rationale seriously, we now have evidence against which it can be assessed. If tax credits incentivised people to have large families, the policy should have led, by now, to measurable changes in the number of births to families that already have two or more children. That has not happened, as the thorough and fair-minded research by Mary Reader, Jonathan Portes and colleagues has shown.

If any good has come out of this awful policy experiment, it is that the hypothesis on which it was based can be firmly rejected. Meanwhile, the situation for families with three or more children continues to worsen. As Ruth Patrick and her colleagues at the LSE have shown, those families are particularly vulnerable to changes in social security policy. The record over recent years shows just how severe the impact of austerity has been.

As the Government do not like the standard relative poverty measures that everyone else talks about, I will refer to their favourite measure: so-called absolute poverty, where the poverty line is fixed in real terms at 2010-11 values. The reason this Government like that measure so much is that it tends to show a downward trend over time as real incomes rise—although the downward trend since 2010 has been remarkably weak. For families with three or more children, the trend in absolute poverty after housing costs was in the opposite direction, with 300,000 more children in absolute poverty between 2016-17 and 2019-20. Some 38% of all children in those families are in poverty, measured against a threshold that was set 12 years ago. Measured against a contemporary poverty threshold, 47% are in poverty after housing costs, up from 41% in 2016-17. It is not solely due to the two-child policy; the whole raft of austerity measures since 2016-17 has particularly impacted these families.

However, the two-child policy can only drive child poverty higher, as more children born since 2017 come within scope of the policy. As we have heard, the Resolution Foundation’s modelling shows poverty for children in these families rising precipitously, with half of those children already in poverty in 2021-22. The Government should respond to that by ditching the two-child policy now. That would be the correct response to the evidence and would remove from our social security system the obscene requirement for rape victims to provide evidence to the Department for Work and Pensions of what the Government term “non-consensual conception.” It would remove the perverse incentive for couples with separate families to maintain two separate households and it would help to address the rise in child poverty, restoring the principle that our welfare state treats all children equally.

--- Later in debate ---

[Alan Brown]

rose—

[Ms Buck]

rose—

[David Rutley]

I will give way to the SNP spokesperson, but then I will make some progress, because others have made many points and I have several to make myself.

--- Later in debate ---

[David Rutley]

I do not think that the hon. Member was here for the whole debate. I will take interventions from others, who have had the courtesy to be here for the whole debate, but I will carry on for now.

On the point about monitoring, we are keeping all our policies under review, but this policy seeks to strike the right balance between supporting those in need and fairness for taxpayers and those who support themselves primarily through work, who do not see their incomes rise when they have more children.

The hon. Members for Arfon (Hywel Williams) and for Cynon Valley (Beth Winter) made some points about poverty and whether this policy is impacting it. I am sure they are assiduously following the latest households below average income statistics, which show that the support we put in place around benefits and incentives for people to get into work—creating a vibrant labour market so that people can get into work and progress—means that 1.2 million fewer people were in absolute low income, before housing costs, in 2020-21, compared with 2009-10. That included 200,000 fewer children and 500,000 fewer working-age adults. Furthermore, there are now nearly 1 million fewer workless households and, very importantly, almost 540,000 fewer children living in such households than in 2010.

[Ms Buck]

Can the Minister confirm that he accepts the point I made in my speech—that the number of families with three or more children that are in absolute poverty has gone up significantly?

[David Rutley]

Our policy is to seek to ensure that we get more children out of workless households, which we are succeeding in doing, and that there are more employment opportunities for people. We are moving that agenda forward very successfully in the current labour market, and we need to continue to move it forward.

The most sustainable way to lift children out of poverty is by supporting parents to get into, and progress in, work wherever possible. The Government have consistently said that the best way to support people’s living standards is through good work, better skills and higher wages. We have provided significant work incentives, which I have already highlighted, through universal credit, but also through our plan for jobs and the kickstart and restart schemes, which demonstrated the Department’s commitment to supporting families to get into, or to progress in, work. We have a range of policies that support people and families across the tax and benefits systems, and the household support fund for those who are particularly vulnerable.

I would highlight, one final time, that on 9 July 2021, the Supreme Court handed down the judicial review judgment on the two-child policy. The court found that the policy was lawful and not in breach of the European convention on human rights. The policy to support a maximum of two children strikes a balance between providing support for those who need it and ensuring a sense of fairness to taxpayers.