Benefits and pensions rise as two-child cap ends

Benefits and Pensions Rise as Two-Child Cap Ends

As the new financial year begins, the state pension and several benefits are set to increase, with a notable boost for families with more than two children. The removal of the two-child benefit cap will provide an average annual increase of £4,100 to approximately 480,000 households that have three or more children. This adjustment is expected to ease financial strain for many, particularly as living costs continue to climb.

Support for Larger Families

The change affects the universal credit system, offering additional financial support to parents of larger families. Tracey Morris, a single mother in Huddersfield with five children, highlighted the relief this brings. She works full-time for the 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,” she said. Tracey relies on the Bread and Butter Thing food pantry to afford essentials.

“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 added.

The child element of universal credit will rise starting May, automatically adjusting for eligible parents without the need for applications. Alongside this, about three million families will see an average increase of £120 in their basic allowance. However, the health element of universal credit, which supports those with disabilities, is being reduced by half, impacting only new claimants rather than existing ones.

Broader Benefit Adjustments

Other key benefits, such as personal independence payment, attendance allowance, and carer’s allowance, have also increased by 3.8%, aligning with inflation. The state pension, which grows by 4.8% to match average wages, is subject to the triple-lock mechanism. This ensures recipients receive a full pension after 35 qualifying years of contributions. Meanwhile, the state pension age will gradually rise from 66 to 67 over the next two years.

Additional reforms include changes to inheritance tax on farms, dividend taxation, and tax relief for venture capital trusts and homeworking. These adjustments are part of a broader trend where income tax thresholds have remained unchanged for the past year, leading to more individuals entering higher tax brackets as wages increase. The Conservatives originally froze thresholds until 2028-29, and Labour later extended this to 2031.

Controversy Over Tax Changes

While these measures generate extra revenue for public services, economists criticize them as a “stealth tax,” as they raise tax collections without altering rates. The BBC has developed a calculator to estimate how earnings might be affected in England, Wales, and Northern Ireland. Scotland maintains separate tax bands, and self-employed workers face different calculations.