Benefits and pensions rise as two-child cap ends
Benefits and Pensions Rise as Two-Child Cap Ends
As the new financial year kicks off, a range of benefits and the state pension are experiencing upward adjustments. Notably, families with more than two children will see increased support through universal credit. The removal of the two-child benefit cap is expected to provide an average annual boost of £4,100 for about 480,000 households that have three or more children.
Charities have called the policy shift a “gamechanger,” emphasizing its potential to alleviate financial strain. However, some critics argue that the government might allocate the funds more effectively elsewhere. Previously, parents were limited to receiving universal credit or tax credits for their first two children, a measure estimated to have saved the Treasury £3.6bn annually.
A Mother’s Perspective
Tracey Morris, a single mother in Huddersfield, is one of many families benefiting from the change. She has been working full-time for the local council and taking on extra shifts at a pub to boost her income. “I’ve always had to be careful with how I spend, and it’s been a struggle as living costs soar,” she explained.
“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 we’re in,” Tracey said. She relies on her local food pantry, The Bread and Butter Thing, to afford basic groceries.
Starting in May, the child component of universal credit will automatically increase, ensuring eligible parents don’t need to apply for the adjustment. Additional modifications to the basic allowance mean roughly three million families will see an average rise of £120 this year. However, the health element of universal credit, which supports those with disabilities, is being cut in half. This reduction affects only new claimants, while the 2.8 million existing recipients remain unchanged.
Other key benefits, including major disability-related payments like personal independence payment and carer’s allowance, have also risen by 3.8%, aligning with inflation. The state pension is increasing by 4.8%, matching average wage growth due to the triple-lock mechanism. This means individuals with 35 qualifying years of contributions will receive a full pension, though the retirement age will gradually rise from 66 to 67 over the next two years.
Additional reforms are taking effect, such as updated inheritance tax rules for farms, adjustments to dividend tax, and new tax relief for venture capital trusts and homeworkers. These changes also coincide with income tax thresholds remaining frozen for another year. This policy has led to more people entering higher tax brackets as wages grow, with the Conservatives initially freezing thresholds until 2028-29 and Labour extending it to 2031.
The freeze generates extra revenue to fund public services but is often criticized as a “stealth tax” by economists. It increases tax collections without raising rates. The BBC has developed a calculator to estimate how these changes might impact your earnings, applicable to employees in England, Wales, and Northern Ireland. Scotland’s tax bands and self-employed workers’ rules differ slightly.
