Rachel Reeves has signalled she favours lifting limits on benefits linked to family size, telling BBC Radio 5 Live that children in larger families should not be penalised. Reporting by Sky News and the Guardian suggests a full removal of the two‑child cap is now firmly in play for the 26 November Budget, rather than tapered options floated earlier. The Treasury has already confirmed the Budget date, giving officials a narrow window to finalise the numbers.

For readers juggling real-life bills, the policy at issue is straightforward. Since April 2017, new Universal Credit and Child Tax Credit claims have been limited to support for the first two children, with narrow exemptions. This is separate from Child Benefit, which is still paid to eligible families but is increasingly clawed back via the High Income Child Benefit Charge. The House of Commons Library and GOV.UK both set out the current rules and exceptions in detail.

What would scrapping the cap achieve? The Institute for Fiscal Studies says the answer depends on assumptions. In its Green Budget work, reversing the limit would ultimately lift around 540,000 children above the absolute poverty line at an eventual cost of about £2.5bn a year, though some gains are damped by the separate household benefit cap. Other coverage citing IFS puts the effect closer to 630,000 children at a cost of roughly £3.6bn. The different figures reflect modelling choices and time horizons rather than disagreement about direction of travel.

Politics around the cap has sharpened. Labour’s new deputy leader Lucy Powell won after arguing for bolder action on child poverty, while the Conservatives under Kemi Badenoch have vowed to defend-or even reinstate- the cap if it is lifted, arguing people on benefits should make the same choices as those in work. Reform UK, by contrast, says it would scrap the cap entirely.

The fiscal trade‑off is the other half of this story. Reeves has left open the possibility of breaking Labour’s 2024 pledge not to raise Income Tax, VAT or National Insurance, saying the alternative would be deep cuts to investment-messaging she reiterated in today’s BBC interview, according to Sky News and the Financial Times. Remember too that last year’s Budget raised employers’ National Insurance to 15% from April 2025, shifting the burden towards payrolls rather than employees.

For households, the bigger near‑term swing factor may be whether the freeze on Income Tax thresholds is extended beyond April 2028. Both the FT and the BBC have noted ministers are keeping that option on the table. A longer freeze pulls more pay into higher bands as wages rise-a quiet squeeze even if headline tax rates stay unchanged. Budget wording here will be closely read by payroll teams and anyone nearing higher‑rate bands.

It’s also worth checking the Child Benefit rules. Since April 2024, the High Income Child Benefit Charge starts at £60,000 and claws back the full amount by £80,000. That means higher‑earning households can still receive Child Benefit but will repay some or all of it through the tax system. Any move on the two‑child limit won’t change those thresholds unless ministers say so on 26 November.

SME owners face their own arithmetic. With employers’ NI at 15% this tax year and the secondary threshold lower, staffing plans and 2025 pay reviews already look tighter, even after the rise in the Employment Allowance to £10,500. The BBC has also flagged ideas reported by The Times-such as applying employers’ NI to certain LLP members-as potential revenue raisers. None of this is confirmed, but it shows where the Treasury is looking.

One caution if the cap is scrapped: the separate household benefit cap can limit how much of the gain actually reaches some families, especially in high‑rent areas. The IFS notes this interaction and GOV.UK data detail current cap levels. Policymakers who want the change to bite may need to consider both rules together or risk blunting the impact.

Market Pulse UK view: this is the clearest sign yet of a Budget that swaps a targeted welfare change for harder choices on tax or spending. For households, keep an eye on threshold policy and the Child Benefit charge. For employers, build in a 2026 cost base that assumes employers’ NI stays put and factor in any skills or payroll reforms announced on 26 November. We’ll update our planning notes as soon as the Red Book lands.