Benefits and pensions rise as two-child cap ends

Benefits and Pensions Rise as Two-Child Cap Ends

As the new financial year begins, a range of benefits and the state pension are increasing, with larger families receiving additional support through universal credit. The removal of the two-child benefit cap means families with three or more children will now see an average annual boost of £4,100. This change affects approximately 480,000 households, offering relief amid rising living costs.

Impact on Families and Public Response

Charities have called the policy shift a “gamechanger,” highlighting its potential to alleviate financial strain. For many, the adjustment comes at a critical time. 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.” She relies on a local food pantry, The Bread and Butter Thing, to afford groceries, describing the situation as “so draining” and noting the emotional toll of constant worry.

“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.

With the cap lifted, Tracey will gain nearly £300 monthly for each of her three children. The child element of universal credit will automatically rise starting May, requiring no new applications from eligible parents. Meanwhile, the basic allowance for universal credit will increase by £120 on average for about three million families this year.

State Pension and Other Benefit Adjustments

Alongside these changes, the state pension is set to increase by 4.8%, aligning with average wage growth due to the triple-lock mechanism. This mechanism ensures the pension keeps pace with inflation, wages, or the minimum rate of the state pension—whichever is highest. However, the state pension age is gradually rising from 66 to 67 over the next two years.

Other main disability benefits, such as personal independence payment, attendance allowance, and disability living allowance, have also risen by 3.8% to match current price levels. Carer’s allowance has seen a similar adjustment. Yet, the health element of universal credit, which supports claimants with disabilities, is being reduced by half, with the cut applying only to new recipients.

Tax Changes and Broader Implications

Additional measures take effect this year, including updates to inheritance tax rules for farms, adjustments to dividend tax, and expanded tax relief for venture capital trusts and homeworking. Income tax thresholds remain frozen, leading to more people entering higher tax brackets or paying taxes as wages grow. This policy has generated extra revenue for public services but is often labeled a “stealth tax” by economists.

The government initially paused threshold increases until 2028-29, a move later extended to 2031 under Labour’s leadership. While the change benefits the Treasury, critics argue the funds could be better allocated elsewhere. The BBC has developed a calculator to help estimate how these adjustments might affect individuals’ taxes in England, Wales, and Northern Ireland. Scotland’s tax bands differ, and self-employed workers face unique calculations.