Chancellor Rachel Reeves announces two-child benefit cap abolished as she says
Rachel Reeves unveiled a £15 billion benefits spending plan at Wednesday’s Budget, and scrapped the two-child benefit cap.. There will be increased payments for those receiving Universal Credit, Personal Independence Payment (PIP) and child benefits.
The Chancellor framed the move – projected to cost taxpayers £3 billion annually – as a strategy to lift hundreds of thousands of children out of poverty. Ms Reeves raised payouts for “working-age benefits” such as Universal Credit, Personal Independence Payment (PIP) and child benefits in line with inflation, at 3.8 per cent, from April.
Chancellor Rachel Reeves confirmed the two-child benefit cap will be lifted, telling the Commons: “We on this side of the House do not believe that the solution to a broken welfare system is to punish the most vulnerable children.”
This action is predicted to cost up to £6 billion. As a result, payments for more than 3.8 million PIP claimants are expected to rise by 3.8 per cent.
An increase of 3.8 per cent would see people on both the highest awards of the daily living and mobility components rise from £187.45 per week to £194.55.
While all benefits typically increase annually in line with inflation, an additional 2.3 per cent uplift on top of inflation is set to be added to Universal Credit in 2026 due to a change in law this year, the Universal Credit Act 2025. This act mandates that the benefit will rise by more than inflation each year until 2030.
With September’s inflation rate at 3.8%, Universal Credit claimants can expect an above-inflation increase of 6.2% from April 2026. This equates to an extra £6 weekly for a single claimant, or £312 annually.
According to the Office for Budget Responsibility (OBR), government spending on welfare per year is projected to climb from £333.0 billion in 2025/26 to £389.4 billion in 2029/30. These figures are higher than previous forecasts of £326.1 billion in 2025/26 and £373.4 billion in 2029/30.
The revised forecasts take into account the reversal of previously announced cuts to winter fuel payments and health-related benefits, as well as the removal of the two-child limit within Universal Credit, the OBR stated.
Annual spending on health and disability benefits is now predicted to rise from £83.1 billion in 2025/26 to £103.6 billion in 2029/30. This is an increase from the previous forecasts of £81.2 billion in 2025/26 and £97.7 billion in 2029/30.
Ministers confirmed these final figures in the Budget, with the changes expected to come into effect in 2026.
The proposed changes are part of a broader overhaul that will see Limited Capability for Work Related Activity payments slashed from £432 monthly to £217, then frozen, whilst the standard rate receives an above-inflation rise.
According to Joseph Rowntree Foundation figures reported by the BBC, Universal Credit’s standard allowance would rise from £92 to £98 weekly for single claimants, or from £145 to £154 weekly for couples.
The Chancellor said her budget reflected “Labour values” by protecting lower earners from the steepest tax increases whilst supporting welfare recipients. This approach ensures those with the “broadest shoulders” contribute the most.
Turning to welfare reform, Rachel Reeves told the Commons: “Under the Conservatives, the cost of our welfare system increased by nearly one percentage point of GDP – equivalent to £88 billion over five years.
“The broken welfare system that we inherited wrote off millions of people as too sick to work and we will reform that system so that it is a system that does not count the cost of failure, but one that protects people who cannot work and empowers those who can.
“We have brought back face-to-face assessments for disability benefits. Those are the face-to-face assessments that the shadow chancellor (Sir Mel Stride) got rid of when he was work and pensions secretary and our changes we have made to Universal Credit will get 15,000 people back into work, a figure confirmed today.”
Ms Reeves also said: “I’m grateful to the Federation of Small Businesses and Small Business Britain for their representations on apprenticeships and today I am announcing funding to make the training for under-25 apprenticeships completely free for small and medium-sized enterprises.
“I’m funding our new youth guarantee – providing £820 million over the next three years to give the young people who were let down by the Conservatives the support and opportunity they deserve, guaranteeing every young person a place in college, an apprenticeship or personalised job support … and, after 18 months, 18-21 year olds will be offered paid work, not benefits.”
The decision to increase benefits spending follows Ms Reeves being forced to abandon plans for a welfare system shake-up due to substantial opposition from backbenchers, costing approximately £5 billion. Plans to axe winter fuel payments from millions of pensioners were also dropped, resulting in an additional £1.25 billion cost to the government.
Following the U-turn on welfare reforms, Ms Reeves reportedly decided against completely scrapping the two-child cap on benefits. However, she and Sir Keir Starmer have since faced mounting political pressure amid concerns over potential leadership challenges.
Plans to take a more limited approach to scrapping the two-child cap were ditched in favour of a full removal. The Chancellor confirmed that the state pension will rise by 4.8 per cent, in line with earnings, surpassing the rate of inflation. This means the full state pension rate will increase by £550, costing around £7.8 billion.
The Chancellor plans to tackle the deficit in public finances through a series of tax hikes after scrapping plans to raise the basic rate of income tax.
She raised approximately £10 billion by extending the freeze on income tax thresholds for an additional three years, until 2031, a move often dubbed as a “stealth tax”. This will also mean that all recipients of the full state pension will pay income tax for the first time from 2028 onwards.
Writing in the Sunday Times last weekend, Ms Reeves signalled her ongoing determination to “reform” the welfare system. However, this is unlikely to happen until after findings from Labour minister Stephen Timms’s disability benefits review, and former cabinet minister Alan Milburn’s review of young people not in work, both due later next year.
Speaking last weekend, Mr Milburn said there should be “no no-go areas” when it comes to reforming the benefits system, having previously insisted that the UK cannot afford to pull back from welfare reform.