It means that families cannot get any extra universal credit for their third child or any subsequent children born after April 2017.
Families affected by the two-child limit miss out on around £3,500 a year per child.
The Child Poverty Action Group (CPAG) estimates that 350,000 children will be immediately lifted out of poverty once the cap is scrapped, and 700,000 children will be in less deep poverty.
Big Issue is one of more than 100 organisations to have publicly called for an end to the two-child limit on benefits.
Big Issue founder Lord John Bird said: “The abolition of the two-child benefit limit will offer relief to thousands of children who have had no choice in inheriting the poverty of their parents.
“A situation where young people are punished for the lottery of their birth is intolerable. Scrapping this pernicious policy will improve the immediate circumstances of those children in large, poorer families.
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“In a budget that has required tough choices, the chancellor is right to prioritise protecting the poorest households, who continue to feel the bite of the cost of living crisis more keenly than everyone else.”
Scrapping the two-child limit on benefits will come at a cost of around £3.5 billion a year by the end of the decade, according to the Resolution Foundation.
However, keeping children trapped in poverty also costs the government. Child poverty will cost the country around £40bn by 2027 through greater unemployment, lower earnings and higher spending on public services, according to estimates from the Women’s Budget Group.
The government’s child poverty strategy, which will lay out further plans to tackle child poverty in the UK, is due to be published. It was originally set to be launched in the spring but was delayed until autumn, expected to be released around the same time as the autumn budget.
Helen Barnard, director of policy at Trussell, said: “The cruel two-child limit has driven countless families into hardship, forced to turn to food banks to survive. Today’s announcement of its full and swift removal will help ensure all our children have the best possible start in life, ease pressure on public services, and help to boost our economy.”
Charities are calling for the benefit cap, which puts a limit on the amount that households can get in benefits and also particularly impacts larger families, to be scrapped alongside the two-child limit.
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Barnardo’s chief executive Lynn Perry welcomed the end to the two-child limit as a “landmark moment”, but she said: “With one in three children growing up in poverty, there is still much more to do.
“We urge the government to be even bolder by lifting the benefit cap, which limits the support available to some of the families who are struggling the most.”
Additionally, Big Issue is urging the government to implement legal targets to tackle child poverty, to hold itself accountable.
Lord Bird added: “We must see a truly bold child poverty strategy with clever thinking on how to open up the pathways that offer our children escape from poverty, not just keep them comfortable in a pre-destined wait for lifelong hardship.
“The strategy should be backed by targets which provide much-needed benchmarks to track progress and drive action forward. The government must not dodge this vital layer of scrutiny.”
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