New analysis suggests that working households may be up to £18,000 worse off than out-of-work families following the Government’s decision to abolish the two-child benefit cap – one of the flagship measures in Chancellor Rachel Reeves’s recent Budget.
According to figures reported by The Telegraph, and drawn from research by the Centre for Social Justice (CSJ), a family with three children in which at least one parent claims the average level of Universal Credit alongside other benefits could receive as much as £46,000 by next year.
By comparison, a similar family supported by one full-time and one part-time worker earning the national living wage would take home roughly £28,000 after tax.
The CSJ’s findings have added momentum to criticism that the Budget significantly expanded welfare spending—by around £16 billion—while raising taxes on working households by an estimated £26 billion.
Kemi Badenoch, Conservative leader, wrote in The Telegraph that Labour had created a system “where people who work hard and do the right thing struggle to get by, while those who do not work can end up with greater security funded by other taxpayers who are getting crushed by the burden”.
Former Conservative leader and CSJ chair Sir Iain Duncan Smith also warned that the rising welfare bill was undermining incentives to work. “Getting welfare spending under control is critical. We must make work pay and, as this Government loses control of a ballooning welfare budget, it will ensure work does not pay,” he told the newspaper.
Benefit income now outstripping working wages for larger families
The two-child limit—scrapped in the Budget—was originally introduced in 2017. Its abolition is projected to cost about £3 billion and was welcomed broadly across the Labour Party.
The CSJ’s modelling, as cited in The Telegraph, found:
- A three-child family receiving combined UC, housing support and health-related benefits such as Personal Independence Payment (PIP) could receive £46,000 by 2026–27.
- A comparable five-child household could receive £55,000.
- A single out-of-work parent with three children on the same combined benefits would receive £43,000—more than £22,000 above the net income from a full-time job paying £20,600.
- A single working parent of three with a child receiving an allowance for a condition such as ADHD or autism could receive £38,000, still exceeding the annual take-home pay from a living-wage role by £17,000.
The think tank argued that a working parent would now require a salary of around £71,000 to match the benefit income of a three-child out-of-work family. That figure rises to £90,000 to equal the support available to a five-child household.
CSJ warns of “perverse incentives”
The CSJ report, The Benefits Budget, cited what it called a “worsening of deeply perverse incentives” in the welfare system. It estimated that the number of out-of-work adults with no requirement to seek employment had risen to over five million, almost twice the pre-pandemic level when legacy benefit recipients were included.
The think tank also warned that:
- Working-age health-related benefit spending could reach 1.9% of GDP by 2030, the highest level in two decades.
- The number of children living in workless households had risen to 1.5 million, the fastest increase on record.
Joe Shalam, policy director at the CSJ, told The Telegraph: “Work is the best route out of poverty, but our welfare system grows ever more riddled with perverse incentives that trap people on benefits and fail to help them towards financial independence. This failure ripples through the generations, with children twice as likely to be in absolute poverty when growing up without seeing a parent go out to work each morning.”
The CSJ recommended accelerating employment support for young people (from an 18-month wait to just three months) and tightening eligibility for UC health and PIP payments for those with milder mental health conditions, a group it estimated at 1.1 million.
Worth reading the Telegraph’s article in full here.
