Keir Starmer has been warned that the two-child benefit cap has contributed to a widening gulf in regional poverty, leaving almost half of all children in some towns and cities living below the breadline.
With the prime minister under pressure to drop the policy, research from the Resolution Foundation showed a “very strong relationship” between local levels of child poverty and the share of families affected by the measure introduced by the previous Conservative government.
The thinktank said failure to tackle entrenched regional inequalities over the past three decades had been compounded by the policy, leaving almost half of all children living in Birmingham, Tower Hamlets in London, Manchester, Sandwell, Stoke-on-Trent, Oldham, Wolverhampton and Walsall to grow up in families in poverty.
Starmer has faced demands from within Labour ranks and from opposition leaders to abolish the policy, which was announced in 2015 by George Osborne, then chancellor, and came into effect a couple of years later.
Regarded by experts as the UK’s biggest single driver of child poverty, affecting about 1.6 million children, the policy restricts child tax credit and universal credit in most households to the first two children. Abolishing it would cost the government between £2.5bn and £3.6bn this year.
In a report, published as far-right populists attempt to exploit economic divisions amid widespread rioting in some towns and cities, the Resolution Foundation said progress had been made in narrowing some regional pay and jobs gaps over the past three decades.
However, other divisions had sharply increased, including for relative poverty, defined in the report as when people live in households with income of less than 60% of the median, after housing costs.
It said the minimum wage had reduced pay gaps between places, but the two-child limit appeared to have done the opposite for overall incomes, hitting the north-west of England and the West Midlands most.
In these regions, more than five in 10 children in larger families (with three or more children) were in relative poverty in 2022-23. This compared with four in 10 nationwide.
Britain’s child poverty hotspots have also shifted dramatically. In 2014-15, 19 out of the 20 local areas with the highest rates were in London, but by 2022-23 this had fallen to just three in the capital, with the rest spread across the north-west and West Midlands.
The 20 local authorities with the largest percentage point increase in child poverty were in these two regions.
Meanwhile, the general secretary of the Unite trade union warned that part of the government response to rioting fuelled by the far right must include tackling “rampant inequality”.
Saying that Britain’s economic system had “failed”, Sharon Graham wrote on X that further failure to tackle inequality, crumbling public services, poor-quality jobs and bad pay would leave the populist right emboldened to exploit divisions in living standards.
“We are at a turning point. We need change now. Not waffle about responsible spending or fiscal rules,” she said. “None of this talks to the worker or their community. It addresses no issues. It just plays into the hands of those that seek division.”
Charlie McCurdy, an economist at the Resolution Foundation, said: “Of most concern is that regional economic differences are deeply entrenched: across multiple measures, the places that were doing worst in the late 1990s have generally continued to do so.
“The new government may have ditched the language of ‘levelling up’, but their growth agenda cannot be achieved without unlocking the potential of the UK’s second cities and raising living standards in all parts of the country.”
A government spokesperson said: “No child should be in poverty – that’s why our new cross-government taskforce will develop an ambitious child poverty strategy to tackle the crisis.
“Alongside this urgent work, we will roll out free breakfast clubs in all primary schools while delivering on our plan to grow the economy and make work pay for hard-working families in every part of the country.”
