Scrap two-child and benefit caps: note

Central fiscal result

+£4.1bn - Net fiscal impact in 2028-29

Low case: +£2.5bn. High case: +£7.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Models scrap two-child and benefit caps by 2028-29.
• Baseline is current policy or published departmental plans.
• Central case uses published party or official anchors where available.
• Wider manifesto interactions are excluded unless stated.

Affected population

• Affected units are people, firms, households or providers depending on policy.
• Direct exposure follows the manifesto or government target group.
• Indirect exposure includes suppliers, workers, consumers and taxpayers.
• Weakest counts are widened in the low and high cases.

Gross impact

• Published anchor or scenario central is +£4.1bn in 2028-29.
• Gross costs or receipts are adjusted for behaviour and delivery risk.
• Tax, benefit or procurement offsets are separated in the fiscal build-up.
• The range is deliberately wider where implementation detail is thin.

Fiscal build-up, central case

• Gross programme or delivery cost: +£4.7bn
• Tax and receipt offsets: -£0.3bn
• Administration and evaluation: +£0.1bn
• Behavioural and pass-through effects: -£0.4bn

Central net impact: +£4.1bn in 2028-29.

Behaviour and pass-through

• Low case assumes stronger delivery or receipts than central.
• Central case applies moderate behavioural leakage and pass-through.
• High case allows weaker delivery, larger take-up or higher costs.
• Output effects follow incidence, capacity and investment channels.
• Distributional gains do not automatically imply GDP gains.

Phasing

• 2026-27: +£0.4bn. Phased implementation and take-up.
• 2027-28: +£2.3bn. Phased implementation and take-up.
• 2028-29: +£4.1bn. Phased implementation and take-up.
• 2029-30: +£4.1bn. Phased implementation and take-up.

Main source groups

• Card, Kluve and Weber, "What Works? A Meta Analysis of Active Labor Market Programs" (Journal of the European Economic Association, 2018): Employment programmes often perform better over the medium term than immediately, with design varying sharply; supports scepticism about quick employment savings.
• Chetty, "Moral Hazard versus Liquidity and Optimal Unemployment Insurance" (Journal of Political Economy, 2008): Benefit generosity can affect search behaviour, but liquidity and hardship channels also matter; relevant to welfare changes and conditionality.
• Liberal Democrats, "Funding a Fair Deal: Liberal Democrat Manifesto Costings" (2024): Party costings give 2028-29 spending, revenue and investment figures; used as starting anchors, not official costings.
• Liberal Democrats, "For a Fair Deal: Liberal Democrat Manifesto 2024" (2024): The manifesto gives announced policy detail across health, care, housing, taxes and climate; used to define the policy scenarios.