Benefits and pensions rise as two-child cap ends

Benefits and Pensions Rise as Two-Child Cap Ends

The start of the new financial year brings increases to a range of benefits and the state pension, with larger families receiving additional support through universal credit. A significant change involves the removal of the two-child benefit cap, which will provide an average annual boost of £4,100 to around 480,000 households with three or more children.

Impact on Families

Tracey Morris, a single mother in Huddersfield with five children, shares how the adjustment has eased her financial burden. “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 explains. She relies on her local food pantry, The Bread and Butter Thing, to access 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, unfortunately, that we are in,” she adds.

“This is a massive help in dealing with the rising cost of living,” says Tracey, who works full-time for the local council and takes on extra shifts at a pub to supplement her income.

Previously, parents could only claim universal credit or tax credits for their first two children, a rule that saved the Treasury approximately £3.6bn annually. With the cap lifted, eligible families will automatically see their child element of universal credit increase starting May. This change will benefit about 59% of those receiving additional support, including Tracey, who is now working full-time.

Other adjustments to universal credit’s basic allowance will see around three million families gain an average of £120 per year. However, the health element of the benefit, which supports individuals with disabilities, is being reduced by half. This cut applies only to new claimants, while the 2.8 million existing recipients remain unaffected.

Other Benefits and Pensions

Disability-related benefits, such as personal independence payment, attendance allowance, and disability living allowance, have also risen by 3.8% to match inflation. The state pension, meanwhile, is increasing by 4.8%, aligning with average wages. This is due to the triple-lock mechanism, which ensures the pension keeps pace with prices, earnings, or a minimum rate.

Alongside these changes, the state pension age is gradually rising from 66 to 67 over the next two years. Additional measures include updates to inheritance tax on farms, dividend taxes, venture capital trust relief, and homeworking tax provisions. Income tax thresholds have remained frozen for another year, meaning more individuals may enter higher tax brackets as wages grow.

The Conservatives initially paused threshold increases until 2028-29, and Labour later extended this freeze to 2031. While the policy generates extra revenue for public services, economists often refer to it as a “stealth tax” because it boosts tax collections without altering rates. The BBC has developed a tool to help calculate how pay might be affected for employees in England, Wales, and Northern Ireland. Scotland’s tax bands differ, and self-employed workers are taxed separately.