Benefits and pensions rise as two-child cap ends
Benefits and pensions rise as two-child cap ends
The state pension and various benefits are set to increase at the start of the new financial year, with larger families receiving enhanced support through universal credit. The removal of the two-child benefit cap has led to an average annual boost of £4,100 for approximately 480,000 households with three or more children. This change has been praised by some as a significant shift in policy, though others argue the funds could be allocated more effectively elsewhere.
A boost for families
Parents who previously faced restrictions on claiming universal credit or tax credits for more than two children will now benefit from a broader support system. For example, Tracey Morris, a single mother in Huddersfield, works full-time for the local council and takes on extra shifts at a pub to supplement her income. With five children aged between six and 19, she is among the 59% of families set to see increased support. “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,” she said.
“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.”
The child element of universal credit will automatically increase from May, with no need for applications. This adjustment applies to families with three or more children, providing an additional £300 monthly per child. Meanwhile, the basic allowance for universal credit will see an average annual rise of £120 for about three million households. However, the health element of the benefit, which supports those with disabilities, is being reduced by half, impacting only new claimants.
Other benefits and pension changes
Additional adjustments include a 3.8% rise across main disability benefits such as personal independence payment, attendance allowance, and disability living allowance. Carer’s allowance has also increased in line with inflation. The state pension, meanwhile, is set to grow by 4.8%, matching average wages due to the triple-lock mechanism. This change applies to individuals who have contributed for 35 years, though the state pension age will gradually rise from 66 to 67 over the next two years.
Additional policy updates
Other reforms are effective this year, including revised inheritance tax rules for farms, adjustments to dividend taxes, and updated tax relief for venture capital trusts and homeworking. Income tax thresholds have remained frozen for another year, meaning more people may enter higher tax brackets as wages increase. The Conservatives initially paused threshold adjustments until 2028-29, and Labour extended this freeze to 2031 in November. While the policy generates additional revenue for public services, economists often refer to it as a “stealth tax” because it raises taxes without altering rates.
The BBC has developed a calculator to help assess how these changes might affect earnings. It is tailored for employees in England, Wales, and Northern Ireland, though Scotland’s tax bands and self-employed workers’ calculations differ.
