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 seen increases, particularly impacting families with more than two children. The removal of the two-child benefit cap has led to a significant boost for around 480,000 households, providing an average annual addition of £4,100. This change has been welcomed as a major relief by some parents, while also sparking debate over its broader economic implications.
Impact on Families with Multiple Children
The previous policy limited the amount of universal credit or tax credits parents could receive for their first two children, saving the government an estimated £3.6bn yearly. Now, families with three or more children benefit from a new financial arrangement, with the child element of universal credit set to rise from May. This adjustment will automatically apply to those eligible, removing the need for applications.
“It’s a massive help in managing the rising cost of living,” said Tracey Morris, a single mother in Huddersfield with five children. “I’ve always had to be cautious with my spending, but the extra income makes a real difference.” She relies on her local food pantry, The Bread and Butter Thing, to afford essential groceries and described the situation as “draining and exhausting.”
Tracey works full-time for the council and takes on extra shifts at a pub to supplement her earnings. She emphasized that while she feels like “failing” at times, the financial support helps her navigate the challenges of raising multiple children.
Other Adjustments in Universal Credit
Alongside the child element increase, other modifications to the basic allowance will affect three million families, granting them an average of £120 more annually. However, the health element, which supports those with disabilities, is being cut in half. This change only impacts new claimants, while existing recipients remain unaffected.
Broader Benefit Increases
Several key benefits, such as personal independence payment and carer’s allowance, have also risen by 3.8%, aligning with inflation. The state pension, too, is increasing by 4.8%, tied to average wages through the triple-lock mechanism. Meanwhile, the state pension age is gradually rising from 66 to 67 over the next two years.
Additional Policy Changes
Other adjustments take effect this year, including updated rules for inheritance tax on farms, dividend taxes, and tax relief for venture capital trusts. Homeworking allowances are also being revised. These changes coincide with frozen income tax thresholds, which means more individuals are entering higher tax brackets as wages grow. The freeze was initially set by the Conservatives until 2028-29 and later extended by Labour to 2031.
The freeze is seen as a way to boost public service funding, though economists often label it a “stealth tax” for its indirect effect on taxpayers. The BBC has developed a calculator to illustrate how wages might be impacted. This tool is specific to employees in England, Wales, and Northern Ireland, with Scotland’s tax bands and self-employed rules remaining distinct.