REMOVING caps on benefits could save the government billions of pounds rather than cost money, a progressive economic think tank says.

The New Economics Foundation (NEF) report, published today, says that the cost of benefit caps could be outweighed by the gains to be made from abolishing them.

Gains include easing extra pressure on the NHS and other services resulting from the poverty caused by the caps, according to the experts.

The benefit cap was introduced in 2013 by the Conservative and Liberal Democrat coalition government and limits the amount of benefits a household can receive.

The two-child limit was introduced by the Tory government in 2017. It restricts the application of child tax credit and universal credit to the first two children in households.

The NEF estimates that axing the caps could save £1.5 billion a year over the next five years alone through lower demand on public services.

In the longer term — in 20 or 25 years — children lifted from poverty could have estimated future net earnings of £920 million a year higher, with an extra £490m returned to government through taxation and reduced spending on social security.

“In reducing child poverty rates, pressures on the NHS, schools and social services will reduce, enabling the reallocation of resources to other areas of high demand,” the report states.

Sam Tims, the report’s author and senior NEF economist, said: “Poverty is one of the greatest barriers that exists in terms of people achieving their potential. 

“The more the government can do to reduce poverty, the more that they will see the gains in the future from a better educated and a healthier workforce.”

The NEF said the Office for Budget Responsibility, which provides analysis of Britain’s public finances, should be setting out longer-term forecasts to take account of likely positive effects further down the line.

A government statement said: “No child should be in poverty — that’s why our ministerial taskforce is looking at all available levers across government as it develops an ambitious strategy to tackle child poverty.

“Tackling child poverty is a core part of our mission to give everyone opportunity and grow the economy.”