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Why does this matter?

Reducing child poverty and raising children’s school readiness are top priorities for the government. However, there is limited causal evidence of how the two are related.

What did we want to find out?

How the ‘two-child limit’, which reduces the benefit amount received by poor families with many children, affects children’s school readiness at age 5.

What we did         

We compared the school readiness outcomes of children born just before and just after the policy implementation in April 2017. As this is an arbitrary date, any difference in the school readiness between these otherwise similar children should be caused by the benefit change.

What we found

We found no statistically significant impact of the policy on the proportion of children achieving a Good Level of Development (GLD) at age 5. We also do not find an effect on GLD for children in most likely hit financially by the policy, based on neighbourhood deprivation or free school meals eligibility.

What this means, and what’s next

This project provides robust evidence about the impact of policies addressing the financial pressures facing economically vulnerable families with young children on the (health and) educational outcomes of their children to inform policy.

Background and aims

Since 2017, families receiving universal credit no longer receive an additional benefit for third and subsequent children born, a policy referred to as the “two-child limit”. While the policy represented a significant reduction in income for larger families, little is known about the causal impacts of this on educational outcomes. This project aims to analyse the impact of the two-child limit on school readiness, measured by the early years foundation stage profile at the end of reception.

Methods and analysis

Using regression discontinuity design around the cut-off date 2017, we compare the outcomes of children born to large families just before and after the policy change. Given the arbitrary cut-off date, these children either side of the cut-off should differ in no other ways except through the amount of benefit received by their families.

Key findings

1. Around 60% of families with a third or subsequent child under age 5 see their benefit entitlements for that child reduced by the two-child limit at any given time. Among those who receive means-tested benefits for the whole of the first five years of their third child’s life, the two-child limit typically reduced benefit entitlements by over £18,300 in total (in 2025–26 prices). Among all families whose third or later child was born in the months following April 2017, including those who do not receive any means-tested benefits, the average loss in benefit income for the child from the policy was an average of £10,200 over the first five years of the third or subsequent child’s life.

2. Despite these substantial income losses, we find no statistically significant impact of the policy on the proportion of children achieving a ‘good level of development’ (GLD) at age 5 – a measure that covers communication, physical development, literacy and numeracy skills at the end of reception, which around two-thirds of children achieve in England. As ever, it is possible there is a very small effect that is statistically undetectable; to give a rough indication of what we can rule out, the results of our main estimation method suggest it is unlikely that the proportion of children achieving the GLD falls by more than 0.9 percentage points due to the policy. To put this in perspective, a child who is 11 days younger than another will, on average, be 0.9 percentage points less likely to achieve the GLD.

3. We also find no evidence of an effect on the GLD for children in the groups most likely to be hit financially by the policy, such as families in the most deprived 20% of neighbourhoods and those entitled to free school meals prior to the third child’s birth. These groups are more likely to have low earnings; therefore, they are more likely to be entitled to means-tested benefits and to see their incomes affected by the two-child limit.

4. These findings do not mean the policy has no wider consequences. The two-child limit clearly contributes to higher rates of child poverty and lower material living standards for many low-income families. This research does not study outcomes such as child health, well-being, skills not captured in the GLD measure, later educational performance at older age, or parental stress. This means that these findings do not rule other effects of the policy on children, now or as they grow up, or indeed on their parents.

5. But the findings do suggest that scrapping or mitigating the two-child limit would be unlikely to contribute cost-effectively to the government’s target to increase the GLD pass rate to 75%, up from the current rate of 68%. Other policies, such as integrated family services delivered via Sure Start, the free entitlement to 15 hours of childcare for 3- and 4-year-olds, or home visiting programmes such as the Family Nurse Partnership, have been shown to have significant effects on school readiness.

ECHILD data used

• HES: Admitted Patient Care (2011/12-2017/18) + mother-baby link

• NPD: Early Years Foundation Stage Profile and Spring Census data (2015/16-2021/22)

IFS Report

Press release