Working Families Could Be £18,000 Worse Off Than Benefit Claimants After This Budget

Summary: According to new analysis, following the scrapping of the two-child benefit cap by Rachel Reeves in the latest Budget, families with several children on benefits may take home substantially more than working households — by as much as £18,000 a year. A family with three children relying on welfare is forecast to receive roughly £46,000 by 2026–27. By contrast, a working family on the minimum wage could end up with around £28,000 take-home pay. The discrepancy has sparked fierce criticism, with some calling the Budget a “Benefits Windfall” for non-working households at the expense of those in employment.

What the Analysis Found

The headline result — that working families could be £18,000 worse off — stems from research undertaken by Centre for Social Justice (CSJ). According to their calculations:

• A household with three children, where at least one adult claims typical levels of benefits including the child element of Universal Credit (UC), housing support, and, where relevant, health/disability benefits such as Personal Independence Payment (PIP), is projected to receive £46,000 per year by 2026–27. (GB News)
• For a household with five children, the equivalent figure rises to around £55,000 per year. (GB News)
• Meanwhile, a working couple — one adult full-time, the other part-time — on the national living wage would take home about £28,000 per year after tax. (Telegraph)
• To match the £46,000 benefit household income, a working adult (or combined earners) would need a pre-tax salary of roughly £71,000. To equal the £55,000 for a five-child household would require around £90,000 pre-tax. (GB News)

Those figures have prompted alarm among tax-paying working families, many of whom feel they are being asked to shoulder the burden for a welfare system that, under these projections, appears more generous than employment for large or non-working households.

Broader Context: Welfare, Worklessness and Child Poverty

The CSJ’s report and accompanying commentary situate these findings within a growing crisis of worklessness and welfare dependency in the UK. Their recent data reveal:

• In 2024, around 1.2 million children were living in households where no parent had worked for more than 12 months — the highest number in nearly a decade. (The Centre for Social Justice)
• Including those in households with shorter-term joblessness, the total number of children in low- or no-work families in 2024 reached nearly 1.5 million. (The Centre for Social Justice)
• This represents the fastest annual rise on record in such households. (The Centre for Social Justice)

The CSJ argues this trend has alarming consequences: children in workless households are much more likely to experience poverty and material deprivation. Their analysis estimates that 62 per cent of children in workless households are in relative poverty, compared with 25 per cent of children in households where at least one adult works. (The Centre for Social Justice)

Moreover, spending on working-age health and disability benefits is forecast to rise sharply over the coming years, reaching 1.9 per cent of GDP by 2030 — the highest level in two decades and almost double the share from a decade ago. (GB News)

These statistics suggest that the welfare system is increasingly supporting a substantial number of people who are out of work, or whose incomes from work are extremely modest, and in some cases no longer provide a meaningful incentive to work.

The Policy Change: Abolishing the Two-Child Cap

The core catalyst of this debate is the government’s decision — via Chancellor Rachel Reeves — to abolish the so-called “two-child cap.” This policy, introduced under the Conservative government in 2017, limited UC child payments to the first two children in most households. (The Guardian)

Under that rule, families with a third (or more) child born after April 2017 would not receive the child-element of UC for that child, and were therefore deprived of a significant source of support. (CPAG)

Supporters of the abolition argued that the cap was unfair, punitive — especially for larger families — and disproportionately affected single parents, families with higher living costs, renting households, and families from ethnic-minority backgrounds. (CPAG)

Official estimates from the Office for Budget Responsibility (OBR), published around the time of the Budget, suggest the move will cost roughly £3.1 billion per year by 2029–30. (Reuters)

The abolition has thus been hailed by many as a long-overdue correction to a harsh policy — one that penalised families for having more than two children, regardless of their need or circumstances.

Why Critics Are Alarmed: Incentives, Fairness, and Fiscal Responsibility

Despite (or perhaps because of) the widespread praise among supporters, the CSJ’s figures have sparked substantial criticism. Several arguments and concerns have been raised:

1. “Work Doesn’t Pay” — When Benefits Outstrip Wages

The central issue is the perverse incentive: under the projections, a family with three (or more) children on benefits could have a higher disposable income than a working family earning the living wage. That undermines a fundamental principle: that work should pay more than welfare.

The notion that a non-working household might take home more than a working one strikes many as unfair — especially given the burden on taxpayers to fund welfare, including rising health and disability benefits.

2. Rising Worklessness

The worrying increase in the number of children living in long-term workless households suggests that welfare is replacing employment for many families. The CSJ warns that this is not merely a short-term trend, but potentially a long-term structural issue that could entrench poverty, educational underachievement, and poor life outcomes for a whole generation of children. (The Centre for Social Justice)

3. Fiscal Pressure on the State

With welfare spending rising — particularly on health, disability, and universal credit — the cost to the public purse is huge. The projected increase to 1.9% of GDP in working-age health benefit expenditure by 2030 is alarming. (GB News)

Critics argue that this could become unsustainable — eventually forcing further tax rises, spending cuts elsewhere, or both.

4. Unintended Social Consequences

There’s concern that the changes may disincentivise work altogether. If benefits can support a comfortable standard of living (especially for larger families), some households may choose not to work, or to reduce working hours — exacerbating the very problems (worklessness, welfare dependence, child poverty) the reforms were ostensibly designed to reduce.

Furthermore, the burden on working taxpayers could lead to resentment, social tension, and a sense of unfairness — particularly in regions already economically under pressure.

Voices from the Debate

Among the vocal critics is Sir Iain Duncan Smith, former Work and Pensions Secretary and now chair of the CSJ. He warned that without urgent reform, the ballooning welfare budget would guarantee that work no longer pays. (Telegraph)

As Sir Iain put it: “Getting welfare spending under control is critical.” Under the current trajectory, he argued, the incentives for work are being steadily eroded — to the detriment of both individuals and society at large. (Telegraph)

On the other side, supporters of the abolition of the two-child cap — including many in the current government — contend that the policy was deeply unfair, penalising children for their order of birth, and punishing parents for decisions (or life events) often beyond their control. (The Guardian)

They argue the welfare state should support children in need — regardless of how many siblings they have — and that scrapping the cap is a necessary step towards tackling entrenched child poverty.

What This Means for Working Families — and for Future Policy

The CSJ’s calculations — if correct — suggest a fundamental realignment of incentives in Britain’s welfare and employment system. If welfare for large or non-working households becomes, in many cases, more financially rewarding than work on the minimum wage, then the premise that “hard work will pay off” risks being undermined.

For working families — especially those on lower incomes, working part-time, or earning the national living wage — the implication is stark: their efforts may not translate into a stable, secure income, especially if family size rises or benefits increase elsewhere (e.g. health, disability).

For policymakers, the message is equally stark: without reforms to welfare (benefit levels, disability payments, work incentives), the state could face ever-increasing costs — and unintended social consequences: worklessness, intergenerational poverty, a growing underclass dependent on benefits, and deep resentment among taxpayers.

Some of the reforms the CSJ have proposed include: tightening the eligibility or generosity of health and disability benefits; reworking child benefit payments; and redirecting support towards making employment more attractive and sustainable (especially for parents). (GB News)

Why Some of the Data Should Be Treated With Caution

That said, not all analysts accept the CSJ’s projections uncritically. There are a number of reasons to approach their findings with caution:

• Assumptions about “average” benefits: The £46,000 or £55,000 figures assume “average” benefit rates across UC, housing support, PIP, and other allowances — but in practice households vary dramatically depending on location (rent levels), number of children, age of children, health/disability status, and employment history. What is “average” may not reflect many real-world cases.
• Behavioural effects: If benefit levels become generous relative to work, some families might choose — voluntarily or involuntarily — to work less or not at all. That in turn could depress wage growth, reduce tax revenue, and complicate the economic picture.
• Fiscal sustainability: Even if the numbers add up now, long-term demographic, economic and social pressures (rising costs, inflation, housing shortages, unemployment) could make sustaining high benefit levels difficult — potentially forcing future governments to cut back, tighten eligibility, or impose new restrictions.
• Social consequences: Large-scale welfare dependency might entrench cycles of deprivation, rather than alleviate them. Long-term worklessness has been linked to poorer educational outcomes, social exclusion, and intergenerational poverty — which the CSJ itself has warned about. (The Centre for Social Justice)

Looking Ahead: What Comes Next?

At present, the abolition of the two-child cap appears to be the most visible change to welfare policy. But the debate over the balance between welfare and work — between support and incentives — is far from settled.

Key questions for the foreseeable future include:

• Will benefit levels (especially health and disability-related) continue to rise — or will the government try to rein them in?
• Will there be reforms designed to encourage employment — for instance: tapering benefits gradually as people return to work; investing in retraining or mental health support; offering incentives for part-time or flexible work for parents.
• How will public opinion evolve — especially among working families who may feel they’re subsidising a welfare system that advantages non-working households?
• What will be the long-term fiscal cost, especially considering demographic trends (ageing population, rising cost of living, increasing numbers of people on health/disability benefits)?
• Finally: what will this all mean for child poverty, inequality, and social mobility in the next decade?

Conclusion

The CSJ’s analysis — and the figures recently spotlighted in the national media — paint a stark, uncomfortable picture. In a Britain where benefits for large or non-working families may soon outpace the income of many hard-working households, the fundamental relationship between work and welfare is being challenged.

For large families on benefits, the changes may be welcome, perhaps even life-changing. But for working families — particularly those on lower wages or with part-time jobs — the message may feel bitter: that despite their efforts, they could end up worse off.

If the welfare state becomes more generous to those out of work than to those in work, the policy risks undermining its own aim. The result may be a growing underclass reliant on benefits — with all the social, economic, and human costs that entails.

It is a debate that reaches to the heart of the future of work, fairness, and social justice in Britain. And if the government is to avoid unintended consequences, rigorous, honest, and long-term thinking will be required — not just compassionate impulses.