Benefits and pensions rise as two-child cap ends

Benefits and Pensions Rise as Two-Child Cap Ends

As the new financial year commences, a range of welfare benefits and the state pension are seeing upward adjustments, with notable changes for households with more than two children. The two-child benefit cap has been removed, providing an average annual boost of £4,100 to approximately 480,000 families who have three or more children.

Financial Relief for Larger Families

Tracey Morris, a mother of five from Huddersfield, is among those benefiting from the policy shift. Her youngest two children were born after the cap was implemented, and she now receives extra support through universal credit. “The cost of living has been overwhelming, and this increase is a massive help,” she shared with the BBC.

“I’ve always had to carefully manage my spending, but it’s a struggle now. This change gives me some breathing room,” Tracey added.

Charities have called the removal of the cap a “gamechanger,” emphasizing its importance for families facing financial hardship. The policy change follows nine years of restrictions that saved the Treasury around £3.6bn annually by limiting benefits to two children.

Broader Benefit Adjustments

Universal credit’s basic allowance will also rise, with about three million families set to gain an average of £120. However, the health element, which supports those with disabilities, is being cut in half. This reduction only applies to new claimants, while existing recipients remain unaffected.

Other welfare programs, such as primary disability payments and carer’s allowance, have increased by 3.8% to align with inflation. The state pension, meanwhile, is rising by 4.8% in line with average wages due to the triple-lock mechanism. This adjustment will gradually raise the state pension age from 66 to 67 over the next two years.

Additional Tax and Welfare Updates

Alongside these changes, other adjustments take effect, including revisions to inheritance tax for farms, dividend taxation, and relief for venture capital trusts. Homeworking tax relief is also introduced. Meanwhile, income tax thresholds remain frozen, pushing more individuals into higher tax brackets as wages rise.

The freeze, initially planned until 2028-29, was extended by Labour to 2031. While this generates additional revenue for public services, economists label it a “stealth tax” for its indirect impact on taxpayers. The BBC has developed a tool to help employees in England, Wales, and Northern Ireland assess their potential tax changes. Scotland and self-employed workers have different rules in place.