The Government’s two-child limit benefits policy should be scrapped and families given more help if it is to tackle child poverty, a new report recommends.

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 set back by the coronavirus pandemic.

It recommends that the two-child limit for Universal Credit (UC) and child tax credit should be scrapped so larger families are not penalised.

And it is calling for UC child payments and child benefit to be raised by at least £10 a week per child.

Now is the time to take action and we must not shy away from difficult decisions

Around 4.3 million children – almost one third of children in the UK – were living in poverty as of March 2020, the SMC said.

The £14 billion package would lift 1.5 million children out of poverty, reducing the overall rate by 35%, the independent body estimates.

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

Last week, figures from the DWP showed that more than 1.1 million children are in families affected by the two-child limit.

The UK-wide policy was introduced in April 2017 and restricts the amount of financial support families with at least three children can receive.

It has been widely criticised by MPs and charities.

The SMC’s call for families to receive an extra £10 a week per child comes as the Government plans to remove the £20 UC uplift introduced to help claimants during the pandemic.

The Government has resisted calls from charities, think tanks 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.

Its report says the impact of the pandemic on children will be felt for decades and outlines measures to improve social mobility that should focus on the “poorest and youngest”.

It said there are already signs that attainment gaps between disadvantaged and privileged children at school are widening, and those in working class jobs have experienced some of the biggest declines in paid work during the pandemic.

It is proposing a seven-pronged recovery strategy that focuses on geography, poverty, early years, education, apprenticeships, digital access and work and career progression.

It recommends that the Government extends free early years child care to more families, introduces a new student premium for 16-19-year-olds, makes teaching employability and life skills mandatory and builds three million more social homes.

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.”

Geoff Barton, general secretary of the Association of School and College Leaders, said: “Experts are lining up to tell the Government what is absolutely obvious to everyone – that the education recovery package it has so far announced will not address the deep and lasting damage that the pandemic has inflicted on the most vulnerable communities across the country.

“Our schools and colleges have a critical role to play in the process of recovery but need the funding to be able to make a difference for the young people affected.”

Sir Peter Lampl, founder and chairman of the Sutton Trust, said: “Today’s report will hopefully transform the Government’s response to the pandemic.

“Funding for education recovery has been negligent and last week’s speech on ‘levelling up’ was short of any specifics.

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

Dan Paskins, director of UK impact at Save the Children, said the impact of poverty is clear, with parents forced to choose between eating and paying bills.

He said: “For children, this means they miss out on the crucial opportunities and experiences enjoyed by their peers, and find it harder to learn and succeed in school.

“No child should be held back from the opportunities they need because of a lack of money.”

A Government spokesman 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.”