Benefits and pensions rise as two-child cap ends
Benefits and pensions rise as two-child cap ends
The start of the new financial year sees several benefits and the state pension increasing, with larger families receiving additional support through universal credit. The two-child cap, which restricted payments for families with more than two children, has been removed, providing an average annual boost of £4,100 to around 480,000 households with three or more kids. Charities have hailed the decision as transformative, while some critics argue the funds could be allocated more effectively elsewhere.
A significant boost for families
For the past nine years, parents had to limit their universal credit or tax credit claims to two children, a policy believed to have saved the government about £3.6bn annually. This change now allows eligible families to receive more, with the child component of universal credit set to rise starting May. Tracey Morris, a single mother in Huddersfield with five children, shared her experience: “I’ve always had to be careful what I spend and how I spend it. The cost of living got so high, it’s a struggle.”
“It’s so draining. I’m exhausted worrying about money all the time. As a mum, sometimes you feel like you’re failing, but I’m not failing, it’s just the situation, unfortunately, that we are in,” she said.
Tracey relies on her local food pantry, The Bread and Butter Thing, to cover essential groceries. The removal of the two-child cap means she will gain nearly £300 monthly for each of her three youngest children. Other universal credit adjustments include a basic allowance increase, affecting three million families with an average annual rise of £120. However, the health element—support for those with disabilities—is being reduced by half, impacting only new claimants among the 2.8 million existing recipients.
Broader benefits and tax reforms
Alongside these changes, major disability benefits like personal independence payment and carer’s allowance have increased by 3.8% to match inflation. The state pension also sees a 4.8% rise, aligned with average wages, thanks to the triple-lock mechanism. This adjustment comes as the state pension age gradually rises from 66 to 67 over the next two years.
Other updates include modifications to inheritance tax for farms, dividend taxes, and tax relief for venture capital trusts and homeworking. Income tax thresholds remain frozen, pushing more individuals into higher tax brackets as wages grow. The Conservatives initially set this freeze until 2028-29, later extended by Labour to 2031. While the policy generates extra revenue for public services, economists often refer to it as a “stealth tax” due to its indirect nature.
The BBC has developed a calculator to illustrate potential impacts on pay for employees in England, Wales, and Northern Ireland. Scotland’s tax bands differ, and self-employed workers are taxed separately.
