Ministers are facing mounting pressure to axe the limit, which has sparked fury among Labour MPs. The news emerges as UK economy growth stalls before Autumn Budget.

On Tuesday, the Chancellor declined to rule out scrapping the cap despite being confronted with a black hole of up to £50bn in the public finances.

The Telegraph states no formal decision has been hammered out, as officials sit tight for the child poverty taskforce to deliver its findings.

The Institute for Fiscal Studies has worked out that ditching the limit would set the Treasury back £3.4bn a year – around three per cent of the total working-age benefits budget.

Running sore between Starmer and backbenchers

Asked if she would use the November Budget to scrap the cap entirely, the Chancellor told a fringe event at the Labour Party conference: “I think we’ve been pretty clear this week that we can’t commit to policies without saying where the money is going to come from.

“I think everybody can see that there are real financial constraints at the moment. Over the last year, the conflicts in the world have continued and intensified. There are pressures on government budgets.

“We’ve had disruptions to supply chains, which keeps inflation high. We’ve had the tariffs from our friends around the world, which has put up prices and depressed growth forecasts and borrowing costs globally.

“All of those things do affect our capacity to do things as quickly as we might like.”

Tapered system on the cards

Asked whether a tapered system was under consideration, she said: “We’ll set all that out at the Budget – I’m not going to set that out now.”

The limit has been a festering wound between Sir Keir Starmer and his backbenchers since Labour’s election manifesto dropped a pledge to lift the two-child benefit cap.

Weeks after entering office, the Prime Minister suspended seven Labour MPs for rebelling against the Government over the cap. John McDonnell, who was let back into the party last week, was among those who lost the whip.

Nigel Farage, the Reform UK leader, has promised to remove the cap for working British nationals.

Reeves forced into major climbdown

Earlier this year, Ms Reeves was forced to U-turn on plans to make it harder to claim personal independence payments following the biggest backbench rebellion of Sir Keir’s premiership.

Ms Reeves admitted she had failed to “win that argument this year” over welfare reform but insisted that the country “can’t go on like this”.

During an in-conversation event with Matt Forde, a comedian, she said: “If there are things that we’ve reversed, then we have to find the money to pay for them.

“When people say, ‘Oh, well, it’s up to Rachel to fund these things in the Budget’ – well, yes, up to a point. But you can’t keep layering policy on policy and not expect to have some consequences.”

Pressure mounts on Prime Minister

Bridget Phillipson, who sits on the Government’s taskforce and is running to become deputy leader of the Labour Party, last week piled pressure on Sir Keir to remove the cap.

The Education Secretary said: “I am determined that we will make greater strides to shrink the number of children living in poverty. Everything is on the table, including removing the two-child limit.”

The Conservatives have vowed to keep the cap as they say taxpayers should not have to foot the bill for families who have more children than they can afford.