Benefits and Pensions Rise as Two-Child Cap Ends

Financial Boost for Larger Families

With the new fiscal year underway, a range of benefits and the state pension are set to increase, including additional support for households with more than two children under universal credit. The removal of the two-child benefit cap has created a significant shift, enabling approximately 480,000 families with three or more children to receive an annual average boost of £4,100.

“I’ve always had to be careful with how I spend money. The cost of living got so high, it’s a struggle,” said Tracey Morris, a single mother in Huddersfield with five children. “As a mum, sometimes you feel like you’re failing, but it’s just the situation we’re in.”

Tracey, who works full-time for her local council and takes occasional overtime at a pub, relies on community resources like the Bread and Butter Thing to afford groceries. The policy change has been praised as a “gamechanger” by charities, though some critics argue the funds could be allocated more effectively elsewhere.

Universal Credit Adjustments

For the first time in nine years, parents with three or more children will see their universal credit payments rise, following the abolition of the two-child cap. This adjustment, effective from May, is part of broader changes to the basic allowance, which will increase by an average of £120 for around three million families this year.

However, the health element of universal credit—designed for those with disabilities—will be reduced by half. This change impacts new claimants, while existing recipients remain unaffected. Other benefits, including primary disability payments and carer’s allowance, have also risen by 3.8%, aligning with inflationary pressures.

State Pension Increases and Tax Changes

The state pension is increasing by 4.8%, in line with average wage growth, thanks to the triple-lock mechanism. This ensures retirees receive a minimum rise based on inflation, earnings, or 2.5% annually. Meanwhile, the retirement age for state pensions is gradually rising from 66 to 67 over the next two years.

Additional adjustments include revised rules for inheritance tax on farms, dividend taxation, and tax relief for venture capital trusts and homeworking. Income tax thresholds, which determine when individuals move into higher tax brackets, have also remained unchanged this year. The government initially froze these thresholds until 2028-29, with Labour extending the freeze to 2031 in November.

Tax Implications and Regional Differences

While the income tax freeze has raised revenue for public services, economists have labeled it a “stealth tax” for its indirect impact on taxpayers. The BBC has developed a calculator to help employees in England, Wales, and Northern Ireland estimate their tax liability under these new rules. Scotland, however, maintains distinct tax band structures, and self-employed workers are subject to different tax treatments.