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Changes: Two Child Limit
Two Child Limit
What's happening?

This is not a limit to the amount of Child Benefit a family can received - instead it limits the help available from certain means tested benefits a family can receive.

The government have confirmed that there will be no 'cash losers' as a result of this policy ie no family's on-going benefit income will be reduced - but many families will not see an increase in some of their benefits on the birth of a child, and in the future new Universal Credit claimants will receive less benefit income from Universal Credit than they would have done under the 'legacy benefit' system.

We are still awaiting the Regulations that will put this proposal in place, but this is what we are expecting to happen given what we know so far...........

'....from 6th April, families with third and subsequent children born after that date will no longer be able to claim additional support through child tax credit and universal credit. The policy will also apply to future new universal credit claims from families with more than two children.'
Caroline Nokes, Parliamentary Under-Secretary for welfare Delivery - debate available on Hansard.

Tax Credits / Housing Benefit

New and existing claimants:
No extra child element/premium for any child born on or after 6th April 2017 if two already in assessment (unless exclusion applies - see below). But the family will receive a child element/premium for each child born before 6th April 2017.

Universal Credit

New claims:
New claimants, from 6th April 2017, who already have three or more children, will be directed to claim Tax Credits instead (and we assume any other legacy benefit* they are entitled to). This will continue up until November 2018 (even in 'Full'/Digital areas) - at which point all claims for the legacy benefits will be closed (apart from HB for claimants who are pension credit age (either single or both members of a couple) /living in 'specified accommodation').
Reg 4(1) of the UC (Transitional Provisions) Regulations 2014 gives the DWP the power to exclude certain groups from claiming UC.

Existing claimants:
If already on Universal Credit as at 5th April 2017, they will stay on Universal Credit and if a claimant has a third (or fourth, or fifth......etc child) on or after April 2017 - they will receive no additional child element. But they will not lose any child element already included in their award.
Where a UC claimant lives in a 'Live'/Gateway area and has three or more children and would be better off of the legacy benefit system, they could end their claim for UC and claim these legacy benefits instead. But they should take advice before ending their UC claim and timing will be crucial.

*legacy benefit - one or more of the benefits Universal Credit is replacing ie Income Support, Income-Based Jobseekers, Income-Related Employment and Support Allowance, Child Tax Credit, Working Tax Credit and Housing Benefit.

Exceptions
There will be exceptions for;
  • Multiple birth - child elements allowed for all third or subsequent child born as part of a multiple birth apart from the first born (unless the fist born in that multiple birth is the families first or second child) - see example below.
  • Formal caring - ie certain Kinship Care arrangements: Where the claimant/partner is neither the parent nor step-parent of the child and there is a Child Arrangement Order conferring residence or Special Guardianship Order (or their equivalents in Scotland) in place. or entitlement to Guardian's Allowance, or the child would otherwise be looked after by the Local Authority as confirmed by a social worker.
  • A child is the child of a young person included in the claimants CTC / UC / HB award.
  • Adoption (exact details not yet known).
  • Child born following non-consensual sex (rape or domestic coercion and control) - and no longer living with the perpetrator - it is expected that a professional third party will confirm whether a child is likely to have been conceived as a result of rape if there is no conviction / compensation from the Criminal Injuries Compensation Authority. Professional third parties will include: health care professionals, police officers, registered social workers, registered counsellors, independent sexual violence advisers, specialist rape charities approved by the DWP/Treasury.

The DWP did consult on the above proposed exceptions - please click here for the consultation document - please note the consultation is now closed - summary of outcome and response from government here.

What about disabled child premiums, and child care costs?
Even if no child premium / child element is included in the Child Tax Credit, Housing Benefit or Universal Credit award for a third (or fourth, or fifth........) child, a disabled child element can still be included in respect of that child as can any child care costs.

What about Council Tax Support/Rebate?
It will be up to each Local Authority to amend their scheme to take account of these changes if they wish to do so.

Examples:

A family on legacy benefits have 3rd child on or after 6 April 2017


Example 1: 

Steve and Sue have two children and their third is born on 16th May 2017.  They are in receipt of Working Tax Credit and Child Tax Credit as Steve works 25 hours per week on a low wage.  However, they will not get any extra Child Tax Credit, and no extra child allowance in their HB award as their third child was born on or after 6 April 2017.  The only increase in their income they will see is extra Child Benefit.

NOTE 1: If they are paying child care costs for their third child they can still receive help with these in their Tax Credits and HB.

NOTE 2: If their third child is awarded DLA, or is severely sight impaired or blind, they will be entitled to a disabled child element in their Child Tax Credit and a disabled child premium in their HB.

(The new two child limit rules makes them £53.46 a week / £2780.00 per annum worse off than had their third child been born before 6th April 2016).


A new claim for HB and Tax Credits after April 2017 from a family with three teenage children


Example 2: 

Josh and Rachel have three teenage boys. They make a new claim for Tax Credits and Housing Benefit in June 2017 as Josh has lost his job and Rachel only works part-time. When their awards are assessed they will get three child elements in their Tax Credits and three child allowances in their Housing Benefit, as their children were all born before 6th April 2017.



A family on Universal Credit having their third child on or after 6 April 2017


Example 3: 

Iman and Steve have two children age 3 and 5. They have been claiming Universal Credit since summer 2016 and are expecting their third child in late May 2017.  After the birth of their third child their Universal Credit will not increase (unless they are paying for eligible child care for the third child and / or in receipt of Disability Living Allowance for the third child and / or third child severely sight impaired or blind), ie. the assessment will only include two child elements. But their Child Benefit will increase accordingly.



A family making a new claim for UC on or after April 2017 with three children already (all born before 6th April), so are redirected to legacy benefits instead


Example 4: 

Alison and Jane have three children and live in a ‘Full’/Digital service area.  They attempt to make a claim for UC following a reduction in earnings in May 2017.  However, as they have three children, they are ‘directed’* to legacy benefits instead. They make a claim for Tax Credits and this is awarded and includes three child elements as all their children were born before April 2017. 

 

* Families with three or more children will not be able to make a new claim for Universal Credit between 6th April 2017 and November 2018 – even in ‘Full’/Digital areas. From November 2018 this will change as new claims for Tax Credits will be turned off and claims for Universal Credit from families with three or more children will be allowed – but limited to two child elements regardless of when the child is born.

So, looking to the future...

Example 5: 

Mo and Louise have three children age 16, 13, and 7. They make a new claim for UC in December 2018.  Even though all three children were born before 6th April 2017 the rules under UC mean that they will only have two child elements included in their UC award. Ie under UC it doesn’t matter when a child is born, they will only receive the two child elements.

 


Multiple births on or after 6 April 2017


Example 6: 

Anthony and Claire receive Tax Credits and have twin boys. In May 2017 Claire gives birth to their third child.  As they have had a third child on or after 6th April 2017, they will not receive an additional Child Element for her.  However, if Anthony and Claire were parents of one child then had twins on or after April 2017, they would receive child three elements in their Child Tax Credit (and three child allowances in their HB).

 

Example 7: 

Salma and Mo receive Universal Credit and have two boys. In August 2017 Salma gives birth to triplets. As they already have two child elements included in their award, they do not receive a child element for the first born triplet but do receive additional child elements for the other triplets – meaning four child elements in total


 

Adoption on or after 6th April 2017


Example 8: 

Wendy gets Jobseekers Allowance, Child Tax Credit, Housing Benefit and Child Benefit for herself and her two children. In July 2017 she adopts a child. As adopted children are exempt from the two child rules limit Wendy’s Child Tax Credit increases as a third child element can be included.


Example 9: 

Joyce and Tony have two children and are in receipt of Child Tax Credit. In May 2017 they have their third child. Although their Child Benefit increases, they are not entitled to an extra child element in their Child Tax Credit. In December 2017 they adopt a brother and sister. As adopted children are excluded from the two child limit their Child Tax Credit will increase as two child elements will be included in the award giving a total of four child elements.


Birth as a result on non-consensual sex


Example 10: 

Kelly has three children and receives Jobseekers Allowance, Child Tax Credit, Housing Benefit and Child Benefit. Her fourth child is born in June 2017, as her social worker can confirm that this birth was the result of Kelly being coerced into having sex with her ex-partner who she is no longer living with, her Child Tax Credit can include a child element for this child.


Two families coming together – neither on Universal Credit


Example 11: 

Iona is a single parent with two children one born before April 2017 and the other after – she gets Income Support, Child Tax Credit, Housing Benefit and Child Benefit. She is moving in with Max who has two teenage daughters. Max works – although on a low wage and gets Tax Credits.


Both Iona’s and Max’s Tax Credit’s would stop - becoming a couple (or a couple separating) triggers the end to an existing Tax Credit claim meaning a new claim is needed under their new circumstances. So they need to make a new claim for Tax Credits (if they live in a ‘Full’/Digital Service area this would normally mean having to claim UC instead but as they have three or more children families in this situation will be directed to claim Tax Credits – this will continue up to November 2018).


As three of the four children were born before 6th April 2017 the Tax Credit award would include three child elements. But as Iona’s youngest was born on or after 6th April 2017 and there are already two or more child elements included in the award of Tax Credits, no fourth child element will be included.

Background
Background

The government's intention to introduce new limits from April 2017 to the number of allowances for children which are paid with Housing Benefit, Child Tax Credit and Universal Credit, was announced in the Summer 2015 Budget.

The Budget Statement indicated that from April 2017 no extra child elements will be paid with Child Tax Credit or Universal Credit for children born on or after 6 April 2017 where there are already two or more children in the family, eg. a family getting CTC for four children who have a new baby in May 2017 will not get any extra CTC.

In respect of new claims for Universal Credit made from April 2017 onwards the measure goes even further, because there will be a limit of two child elements no matter when the children were born. So if a family with three children (all born before April 2017) make a new claim for UC from April 2017 onwards, they will only receive two child elements.

The Budget Statement also said that:

  • 'In UC those who have received tax credits or UC with an interruption of less than six months will be protected'. 
  • The disabled child element and the severely disabled child element will not be affected by this measure.  
  • Multiple births will be protected in both systems. The DWP and HMRC will develop protections for women who have a third child as the result of rape, or other exceptional circumstances.
  • To ensure coherence, the equivalent allowances in Housing Benefit for each dependent child will also be limited to two children, for new births and new claims from April 2017. 

In March 2016, the Welfare Reform and Work Act 2016 was passed through parliament; this states that:

  • in respect of Child Tax Credit - there will be no extra child element paid for any child born on or after 6th April 2017 where there are already two child elements in payment in the award.
  • in respect of Universal Credit - a maximum of two child elements will be payable; transitional provisions may be made 'as the Secretary of State considers necessary or expedient in connection with the coming into force of this section'.

The Act does not mention Housing Benefit.

In July 2016 Damian Green made a statement:
'It is important to deliver the policy to limit the child element of tax credits and Universal Credit to two children to its planned April 2017 timetable. Therefore, we will direct new claims from families with more than two children to Tax Credits until November 2018. Thereafter, new claims from families with more than two children will be taken through Universal Credit. Families already on Universal Credit who have a third child after April 2017 will remain on Universal Credit and receive two child elements'.

Diverting UC claimants to Tax Credits instead raises some questions,particularly:
Will these families be told to claim CTC + UC or CTC + other 'legacy' benefits?
If they will not be claiming UC, we assume the government will have to amend the regulations regarding who can / cannot claim UC in the full (digital) service areas and in the northwest and 'pathfinder' (non-digital) areas where families with children can claim UC.

What about Housing Benefit?  

The information in the budget statements about how this measure will work in Housing Benefit was a little ambiguous. But we are assuming they will mirror the changes to Child Tax Credit rather than Universal Credit. 
In a parliamentary debate on the Welfare Reform and Work Bill in October 2015 Damian Hinds (Exchequer Secretary to the Treasury) stated,
'The only related changes to housing benefit, which will follow in regulations, are to ensure that a claimant’s housing benefit award is no higher than it would have been if the tax credit changes were not introduced. Obviously, without those changes, the tax credit change would have the unintended effect of awarding claimants with more than two children a higher amount of housing benefit, which would reduce the savings from the tax credit change'. 

Example:

Sally and Paul are claiming Tax Credits. They have two children. They are expecting their third child early April 2017.

If they have a third child before 6th April 2017 then their CTC award can include an extra Child Element for that child.

But if their third child is born on or after 6th April 2017 then no additional Child Element can be included in their CTC award - although they can still get a disabled child/severely disabled child element and/or help with childcare for their third child if entitled.

If they are claiming HB as well, (we assume) the same rules apply: 

If they have a third child before 6th April 2017 then their HB award can include an extra Child Premium for that child.

But if their third child is born on or after 6th April 2017 then no additional Child Premium can be included in their HB award - although then can still get a disabled child/severely disabled child premium and/or help with childcare for their third child if entitled. And this third child will be included when working out the size of property Sally and Paul require under the Bedroom Tax/LHA size criteria rules. .

Impact

Clearly, larger families will be most affected by the changes; the risk of child poverty is higher in larger families but also many families who will be affected will be those who are in work. 

Families currently claiming Working and Child Tax Credits or Universal Credit, who have been exempt from the Benefit Cap through working, will be affected by this policy; they will find it more difficult to manage financially if they have a third or subsequent child on or after 6th April 2017.

Looking further into the future, although protection will be available when claimants are moved over from Tax Credits onto Universal Credit, the protection only applies to that particular claim. So if the UC claim comes to an end*, eg. because the claimant starts higher paid work, and then the work ends, so that the claimant needs to make a new claim for UC, there will be no protection. (*Under the 'full' digital service when higher earnings mean no UC in one month, the claim 'ends'). This would appear to be a disincentive to work!

The financial pressures could cause debt and associated stress problems, putting relationships under strain. Some families may make calculated decisions about their living arrangements to avoid the limit. They may 'split up' and share the children between them. And two single parents in a relationship may be put off moving in together due to this measure.