Universal Credit should be extended to families with more than two children, a government body has told ministers, arguing that furlough spending proves that the Treasury can “dig deep” for funds. 

The Social Mobility Commission (SMC) is calling for a shake-up of the child welfare system and for extra funding to help disadvantaged pupils whose education has been disrupted by the coronavirus pandemic.

The advisory non-departmental public body – part of the Department for Education – recommends that the two-child limit for Universal Credit (UC) and child tax credit should be scrapped so that larger families are not penalised.

The controversial ‘two-child’ policy was established in April 2017, providing UC support for a maximum of two children. 

There are limited number of exceptions to the two-child limit, meaning that it does not apply to a subsequent child in the following circumstances: multiple births, adoption from local authority care, kinship care and children likely to have been conceived as a result of rape or a coercive or controlling relationship. 

The policy – which has been widely criticised by MPs and charities – was subject to a legal challenge. The case was eventually heard in the Supreme Court, which upheld the policy. 

Now, in the wake of a “once-in-a-generation crisis” of Covid-19, the SMC is calling for UC to be extended to families with more than two children, and for child benefit to be raised by at least £10 a week per child.

It warned of the “huge risk that the gulf between the rich and the poor will continue to grow ever deeper and wider” if action is not taken, adding that “the UK Government dug deep in its pockets to provide billions of pounds for people on furlough schemes and help for businesses and individuals hit by the pandemic…

“But as we emerge from the crisis and move towards recovery, it must dig deep again and take the same bold and decisive action to improve social mobility.”  

Around 4.3 million children – almost one third of children in the UK – were living in poverty as of March 2020, the SMC said, and its proposed £14 billion package of measures would lift 1.5 million children out of poverty, reducing the overall rate by 35 per cent.

“There could not be a more pressing time for the UK Government to make an action plan,” according to the SMC’s State of the Nation 2021 report.

The SMC’s call for families to receive an extra £10 a week per child comes as the Government plans to remove the £20 Universal Credit uplift introduced to help claimants during the pandemic. It also comes after figures from the Department for Work and Pensions showed last week that more than 1.1 million children are in families affected by the two-child limit.

The Government has resisted calls from charities, thinktanks and its own MPs and former welfare ministers to make the increase permanent, and said it will phase it out from late September. This could affect 6.2 million families, the SMC said.

Sandra Wallace, interim co-chairwoman of the SMC, said: “Now is the time to take action and we must not shy away from difficult decisions.

“Now is the moment to level up opportunities for children across the country. Ending child poverty and investing significantly in education are two of the most impactful and influential things the UK Government can do to improve social mobility.”

Sir Peter Lampl, founder and chairman of the Sutton Trust and chairman of the Education Endowment Foundation (EEF), said that the report makes for “devastating reading”. 

“It’s those from poorer homes whose future prospects are likely to be catastrophic. It’s unacceptable that almost a third of children are classed as living in poverty.

“Failure to act now will have consequences for the lifetimes of young people. Young people deserve better.”

A Government spokesperson said: “We know that children in households where every adult is working are much less likely to be in poverty.

"That’s why our multi-billion pound Plan for Jobs is helping people across the country improve their skills and move forward in their working lives. We also have a comprehensive childcare offer for working parents, while Universal Credit has supported millions throughout the pandemic.

“This Government is focused on levelling up opportunity so that no young person is left behind. That’s why we are providing the biggest uplift to school funding in a decade, investing in early years education and targeting our ambitious recovery funding to support disadvantaged pupils with their attainment.”