The UK welfare system is set for one of its most significant updates in years after Chancellor Rachel Reeves revealed £15 billion in additional benefits spending in the latest Budget. The Budget includes higher payments for Universal Credit, Personal Independence Payment (PIP), and child benefits, along with the complete removal of the two-child benefit cap. Reeves described these changes as essential steps toward reducing poverty and creating a more supportive welfare structure for families during the cost-of-living crisis.
Massive £15 Billion Welfare Increase Announced
Inflation-Linked Benefit Rises
Rachel Reeves confirmed that from April, all working-age benefits, including Universal Credit, PIP, and child benefits, will rise by 3.8%, matching the September inflation figure.
- This adjustment alone is expected to cost up to £6 billion, according to Wales Online.
- More than 3.8 million PIP claimants will receive this 3.8% rise.
- For people on the highest PIP daily living and mobility components, weekly payments will increase from £187.45 to £194.55.
Extra Uplift for Universal Credit from 2026
A major change takes effect in 2026, when Universal Credit will receive an additional 2.3% increase above inflation due to the Universal Credit Act 2025.
- With inflation at 3.8%, the rise will total 6.2%.
- Single claimants will gain around £6 per week, or £312 per year.
- Annual government spending on welfare is projected to increase from £333 billion (2025/26) to £389.4 billion (2029/30).
These figures are higher than previous forecasts, which estimated £326.1 billion in 2025/26 and £373.4 billion in 2029/30.
Two-Child Benefit Cap Fully Scrapped
A Landmark Reform
The Chancellor confirmed that the two-child benefit limit, which prevented most families from claiming Universal Credit or tax credits for more than two children, will be abolished from April.
Reeves branded the two-child cap the “policy that pushes kids into poverty more than any other”, calling it both unjust and ineffective.
She also vowed to eliminate the controversial “rape clause”, which forced women to prove non-consensual conception to receive support:
- “It is cruel… it is dehumanising… and I will remove it.”
Because Reeves plans to recover billions through anti-fraud actions, tax avoidance crackdowns, and gambling tax reforms, the government states the full removal of the cap is “fully costed and fully funded.”
Rising Costs for Disability and Health Benefits
The Office for Budget Responsibility (OBR) said the updated forecasts reflect:
- Reversal of cuts to winter fuel payments
- Restoration of health-related benefits
- Scrapping of the two-child Universal Credit limit
Annual spending on health and disability benefits will now increase from £83.1 billion (2025/26) to £103.6 billion (2029/30) — higher than earlier projections.
Changes to Disability Payments and Universal Credit Structure
A broader welfare overhaul is underway:
- Limited Capability for Work Related Activity (LCWRA) payments will drop from £432 per month to £217, then be frozen.
- Meanwhile, Universal Credit’s standard rate will rise above inflation.
According to Joseph Rowntree Foundation figures:
- Single claimants: £92 → £98 weekly
- Couples: £145 → £154 weekly
Reeves said these changes reflect “Labour values”, arguing that lower-income households will be shielded from the biggest tax pressures.
Why Reeves Reversed Several Welfare Cuts
The Chancellor had originally planned a larger transformation of the welfare system, but:
- Strong resistance from Labour backbenchers
- A projected cost of £5 billion
- Public backlash over proposed winter fuel payment cuts
These forced the government to walk back earlier plans, adding £1.25 billion in extra expenditure.
With mounting political pressure, Reeves ultimately opted for the full removal of the two-child cap instead of a limited version.
State Pension to Increase by 4.8%
The Chancellor confirmed that the state pension will rise by 4.8%, in line with earnings rather than inflation.
- This means payments will increase by around £550 per year.
- Annual cost: £7.8 billion.
Welfare Reform, Apprenticeships, and Youth Guarantee
Reeves highlighted plans to rebuild the welfare system by focusing on empowerment rather than exclusion:
- Face-to-face disability assessments have returned.
- Reforms to Universal Credit aim to help 15,000 people return to work.
- Full funding for under-25 apprenticeship training for SMEs has been announced.
- The Youth Guarantee will receive £820 million over three years, providing:
- A college place
- An apprenticeship
- Personalised job support
- Paid work for 18–21 year olds after 18 months
Warnings from Financial Experts
Andy Haldane, former Bank of England chief economist, warned that markets could turn against the government if expenditure continues rising without control.
He described the situation as a potential “Wile E. Coyote moment”, urging the government to restore fiscal confidence.
Tax Measures to Fill the Budget Gap
To close the funding gap:
- Income tax thresholds will remain frozen until 2030, generating £10 billion (a “stealth tax”).
- From 2028, all full state pension recipients will pay income tax for the first time.
- Reeves is also considering changes to the Motability scheme, although disability groups have cautioned against severe cuts.
Future welfare reforms are expected only after reviews led by Stephen Timms (disability benefits) and Alan Milburn (youth unemployment) conclude next year.
The UK Government Confirms New 2025 Minimum Wage Rates, bringing important changes for workers across the country. These updated rates aim to support employees facing rising living costs, especially young workers and those in lower-paid roles. The announcement explains how each age group and employment category will receive increased pay from April 2025. By introducing these higher wage levels, the government hopes to improve financial stability, reduce wage inequality, and ensure fairer earnings for millions of people.
Conclusion
The new Budget marks a major shift in UK welfare policy, with higher benefits, expanded Universal Credit, increased state pensions, and the abolition of the two-child cap. Rachel Reeves’ decisions demonstrate a commitment to reducing poverty, supporting vulnerable households, and restructuring the welfare system to encourage employment. While critics warn about rising public expenditure, the reforms reflect the government’s intention to balance compassion with economic responsibility. For millions of households, the upcoming changes represent meaningful financial relief during a challenging economic period.
FAQs
1. When will the two-child benefit cap be removed?
The two-child benefit limit will be completely abolished from April, allowing families to claim for all eligible children.
2. How much will Universal Credit increase in 2026?
Universal Credit will rise by 6.2% in April 2026 due to inflation and an additional uplift mandated by the Universal Credit Act 2025.
3. How much will the state pension increase next year?
The state pension will increase by 4.8%, adding about £550 per year for full-rate pensioners.