Axing the cruel two-child benefit limit would cut the cost of poverty by over £3billion-a-year by reducing pressures on crumbling public services, new research has found.

As Rachel Reeves resists calls to scrap the austerity-era policy at the Budget, a think-tank warns today the government is ignoring the the wider economic gains.

Lifting the two-child benefit limit - blamed for trapping kids in poverty - would cost the Treasury around £2.5billion a year, according to experts. But the New Economics Foundation says the government should consider the long-term economic benefit of reducing child poverty.

They conclude scrapping the policy introduced by ex-Tory Chancellor George Osborne - would eventually result in lower demand for public services by £1.7billion-a-year. The think-tank argues it would reduce pressures on the NHS, schools and social services.

In the longer term it would also mean higher annual earnings by £1billion, with an extra £540million returned to the Treasury through tax and lower welfare spending.

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Senior economist at the NEF Sam Tims said: “The two-child limit is a cruel policy that not only keeps families in poverty but holds back people and places from achieving their economic potential."

“It’s clear that scrapping the two-child limit and the benefit cap are two of the most effective levels the state can pull to lift children out of poverty and a necessary investment for a government that wants to boost growth across the country.

“The long-term benefits of scrapping these policies, including easing pressure on our crumbling public services and boosting the future earnings potential of children in poverty, would help ensure prosperity in parts of the country that have been held back for far too long.”

The policy, which prevents people from claiming Child Tax Credits or Universal Credit for more than two children, was introduced by the Tories in 2017. But Keir Starmer has argued he will not make unfunded promises and suspended seven rebel Labour MPs in July for voting against the government on the issue.

Asked about scrapping the two-child benefit limit, Employment Minister Alison McGovern also told The Mirror this week: "We have set out that unfortunately that we're not able to do that at the moment."

She said: "Child poverty is in a terrible state in this country - we've got more than 4million children growing up poor and that's not acceptable". The minister added the government had launched a Child Poverty Taskforce, which will examine the causes of poverty. It is expected to publish its findings in spring next year.