LABOUR will not scrap the two-child benefit cap despite pressure from left wing MPs, according to Downing Street sources.

Plans to shelve the rule have reportedly been binned because of Labour’s £5 billion welfare U-turn.

Earlier this year Starmer told his cabinet he wanted to scrap the cap and asked the Treasury to identify ways to fund the plan.

However, a No 10 source has now told The Sunday Times: “My assessment is that is now dead in the water.”

And a No 11 source warned MPs there has to be “trade offs” for not introducing major welfare reforms, reports the outlet.

“Whether that’s tax rises or not scrapping the two child benefit cap,” they added.

Parents have only been able to claim child tax credit and universal credit for their first two children since 2017.

Imposed in April 2017, parents can not claim child tax credit or universal credit worth up to £3,455 per year for more than two children.

An exception is made for children born as a result of rape.

Lifting the cap would cost an estimated £3.5 billion and the Labour party has long been divided over the issue – with Sir Keir Starmer ruling out scrapping the cap in 2023.

He then said Labour wanted to remove it, but only when fiscal conditions allowed.

Following Labour’s landslide victory last July, the prime minister refused to bow to pressure within his party, and suspended seven MPs for six months for voting with the SNP to scrap the cap.

Ministers have toed the party line for months, but the narrative started to shift in May, with Sir Keir reported to have asked the Treasury to see how scrapping it could be funded.

Labour MPs who forced Sir Keir Starmer into a U-turn last week had set their sights on lifting the benefit cap.

But it looks like that plan is now set to be scrapped once and for all with a decision on the cap set for the autumn.

Speculation has been mounting that ending the two-child benefits cap will be the third welfare U-turn after those relating to winter fuel payments and disability benefits, which have already cost Rachel Reeves billions.

Sir Keir recently suffered the biggest blow to his leadership since coming into power a year ago after he was forced to abandon a key plank of his controversial benefit cuts in order to get them through parliament.

Just minutes before voting began, ministers announced that plans to restrict eligibility for personal independence payments were being dropped.

Sir Keir had already been forced into a U-turn the week before when more than 130 Labour MPs turned rebels and signed an amendment that would have effectively killed the bill off.

Among the concessions announced then was a plan to impose tougher eligibility rules only on future PIP claimants, leaving existing recipients unaffected.

It comes after analysis of official figures previously revealed that ditching the child benefits cap would hand thousands of pounds a year in extra benefits to 180,000 large families in which no one goes out to work.

But critics of the cap claim it has worsened child poverty.

The hard-hitting rule, which slashes payments like Universal Credit and Child Tax Credit, is costing struggling households an average of £4,300 each, according to a recent report from the Institute for Fiscal Studies.

Official figures from the Department for Work and Pensions (DWP) show a staggering 450,000 families were stung by the cap last year.

Most of those hit – around 280,000 families – have three kids, while 120,000 have four, and 56,000 are raising five or more little ones.

The DWP doesn’t reveal exactly how much the biggest families are missing out on.