Benefits and pensions rise as two-child cap ends
Benefits and Pensions Rise as Two-Child Cap Ends
With the new financial year underway, a range of benefits and the state pension have been adjusted, including increased support for households with more than two children. The removal of the two-child benefit cap has led to a significant boost for approximately 480,000 families, who will now see an average annual increase of £4,100. This change has been hailed as a pivotal moment by advocacy groups, while some analysts question whether the funds could be allocated more effectively elsewhere.
Impact on Larger Families
The policy shift means parents can now claim universal credit or tax credits for all their children, not just the first two. This adjustment is expected to benefit around three million families, with an average monthly rise of £120 in basic allowances. However, the health element of universal credit, which supports those with disabilities, is being reduced by half, affecting only new claimants while protecting the 2.8 million existing recipients.
“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,” said Tracey Morris, a single mother from Huddersfield. She has five children, and the youngest two were born after the two-child cap was implemented. Now, with an extra £300 per month for each of her three children, she feels the change is a “massive help” in managing rising expenses. Morris works full-time for her local council and takes on occasional shifts at a pub to supplement her income. She relies on her community’s food pantry, The Bread and Butter Thing, to afford essential groceries.
Other benefits, such as personal independence payment and carer’s allowance, have also increased by 3.8%, aligning with inflation. The state pension, meanwhile, is rising by 4.8% to match average wages, thanks to the triple-lock mechanism. This ensures recipients receive the higher of either the inflation rate, average wage growth, or 2.5%. The pension age will gradually increase from 66 to 67 over the next two years.
Additional Policy Adjustments
Alongside these changes, several other measures have taken effect this year. Inheritance tax rules for farms have been revised, and adjustments to dividend tax, venture capital trusts, and homeworking tax relief are now in place. Income tax thresholds remain frozen, pushing more individuals into higher tax brackets as wages rise. The Conservatives originally set this freeze until 2028-29, and Labour later extended it to 2031.
While these changes aim to fund public services, economists have labeled the frozen thresholds a “stealth tax,” as they generate additional revenue without altering tax rates. The BBC has developed a calculator to help employees in England, Wales, and Northern Ireland estimate their potential tax impacts. Scotland maintains separate tax bands, and self-employed workers face distinct rules.
