Benefits and pensions rise as two-child cap ends
Benefits and Pensions Rise Amid End of Two-Child Cap
With the start of the new financial year, several benefits and the state pension are seeing increases, including additional support for families with more than two children under the universal credit scheme. The removal of the two-child benefit cap means that approximately 480,000 households with three or more children will gain an average annual boost of £4,100. This adjustment has been praised by some as a significant relief, particularly for those struggling with the rising cost of living.
Impact on Larger Families
The policy change, which had restricted universal credit and tax credits to two children for nine years, is projected to save the Treasury around £3.6bn annually. By lifting this cap, families with more children will now receive more financial assistance. Tracey Morris, a single mother in Huddersfield, shared her experience with the BBC, stating the increase was a “massive help” in managing daily expenses. She works full-time for her local council and occasionally takes on extra shifts at a pub to supplement her income.
“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,” Tracey said. She relies on her local food pantry, The Bread and Butter Thing, to afford essential groceries. “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,” she added.
Universal Credit Adjustments
Starting in May, the child component of universal credit will automatically increase, benefiting eligible parents without requiring them to submit new applications. Meanwhile, the basic allowance for universal credit is also rising, with about three million families expecting an average annual boost of £120. However, the health element, which supports individuals with disabilities, is being reduced by half. This change will affect new claimants, though the 2.8 million existing recipients remain unaffected.
State Pension and Additional Changes
The state pension is rising by 4.8%, aligning with average wage growth, thanks to the triple-lock mechanism. This means individuals with 35 qualifying years of contributions will see their full pension increased. The pension age will also gradually rise from 66 to 67 over the next two years. Beyond this, other adjustments include updates to inheritance tax rules for farms, dividend taxes, venture capital trust relief, and homeworking tax benefits. Income tax thresholds, however, remain frozen, leading to more people entering higher tax brackets or starting to pay taxes as wages increase.
Political Context and Economic Perspectives
The Conservatives initially froze tax thresholds until 2028-29, and later, Labour extended this freeze to 2031. While the policy generates extra revenue for public services, it has been criticized by economists as a “stealth tax” due to its indirect nature. The BBC has developed a calculator to estimate how these changes might affect wages in England, Wales, and Northern Ireland. Scotland’s tax bands and self-employed workers’ calculations differ, reflecting regional variations in the policy’s impact.
