Nearly a quarter of Labour MPs have signed a petition urging the chancellor to hike taxes on gambling companies and use the money to lift benefit restrictions on families with more than two children.

The campaign – which has the backing of 101 Labour MPs – says a levy on gambling could raise £3bn which could lift half a million children out of poverty.

Rachel Reeves has come under pressure from her own party, including former prime minister Gordon Brown, to scrap the two-child benefit cap when she sets out her Budget on 26 November.

The UK’s Betting and Gaming Council has said raising taxes on the industry could see billions wiped off the economy, and thousands of job losses.

Writing on the Politics Home website, head of the council Grainne Hurst said large tax rises would “drive customers towards the unsafe, unregulated black market where there are no safer gambling standards, no age verification, and no tax receipts for the exchequer”.

Almost immediately after winning the 2024 general election, the Labour government faced calls from its own MPs to lift the cap, which restricts child tax credit and universal credit (UC) to the first two children in most households.

At the time, the government argued it did not have enough money to remove the cap but set up the Child Poverty Taskforce to consider measures to alleviate child poverty.

The taskforce had been due to produce its conclusions in the spring, but publication has been delayed.

Conservative leader Kemi Badenoch has strongly opposed lifting the cap arguing that taxpayers “many of whom are struggling to raise their own children or choosing not to have them in the first place” should not have to “fund unlimited child support for others”.

However senior voices in the Labour party have continued to push for a change including Treasury select committee chair Dame Meg Hillier, who argued it was “the only way we’ll lift children out of poverty in this parliament”.

The chancellor is facing a £20bn gap in meeting her tax and spending rules and may be wary of committing the £3.5bn experts have said lifting the cap would cost.

She has already hinted that she is considering tax rises and spending cuts to give herself financial breathing room.

The government is currently consulting on plans to merge different betting taxes from October 2027 in a bid to adapt the system to the era of online gambling.

The Social Media Foundation think tank has argued against merging taxes and instead suggested that “higher rates which are more harmful and contribute less to the British economy, such as online slots, should be taxed more”.

“Sectors which are less harmful and provide more to the economy such as traditional horse racing betting, should be taxed less,” it said.

Gordon Brown has backed proposals from the IPPR think tank that taxes on online gambling should be raised from 21% to 50%.

The IPPR has also said taxes on slot machines should rise from 20% to 50% and levies on non-racing bets should be increased from 15% to 25%.