The Chancellor announced £15 billion in benefits spending
Rachel Reeves unveiled a £15 billion benefits spending plan at Wednesday’s Budget, which includes increased payments for those on Universal Credit, Personal Independence Payment (PIP), and child benefits.
In a significant move, the Chancellor announced plans to scrap the two-child benefit cap. She framed this move, projected to cost taxpayers around £3 billion each year, as a strategy to lift hundreds of thousands of children out of poverty.
Ms Reeves also 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, starting from April. This action is expected to cost up to £6 billion.
Personal Independence Payments (PIP)
Payments for over 3.8 million PIP claimants are predicted to increase by 3.8 per cent. A rise of 3.8 per cent would see individuals receiving the highest awards of the daily living and mobility components increase from £187.45 per week to £194.55.
Universal Credit
While all benefits increase annually in line with inflation, in 2026 an extra 2.3 per cent uplift on top of inflation will be added to Universal Credit due to a law change this year, the Universal Credit Act 2025, which mandates that the benefit will be increased by more than inflation each year until 2030. With September’s inflation rate at 3.8 per cent, Universal Credit claimants will experience an above-inflation rise of 6.2 per cent from April 2026, equating to an additional £6 weekly for a single claimant, or £312 annually, reports Wales Online.
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 declared her budget embodied “Labour values” by protecting lower earners from the steepest tax increases whilst backing welfare claimants.
According to the Office for Budget Responsibility (OBR), government spending on welfare per year is projected to increase from £333.0 billion in 2025/26 to £389.4 billion in 2029/30. This is a significant rise compared to previous forecasts of £326.1 billion in 2025/26 and £373.4 billion in 2029/30.
Child Benefit
Rachel Reeves announced that April will mark the end of the two-child benefit cap, which currently limits universal credit and tax credit claims to two children in most households. The Chancellor labelled the two-child cap as a “policy that pushes kids into poverty more than any other”, adding that “it has failed” based on the terms it was introduced under.
Ms Reeves said: “I understand that many families are finding times hard, and that many have had to make difficult choices when it comes to having kids. And there are many reasons why people choose to have children and then find themselves in difficult times – the death of a partner, separation, ill health, a lost job. I don’t believe children should bear the brunt of that.”
She added: “And neither can I in good conscience leave in place the vile policy known as the ‘rape clause’, requiring women to prove if their children have been conceived non-consensually to receive support. I’m proud to be Britain’s first female Chancellor of the Exchequer. I take the responsibilities that come with that seriously. I will not tolerate the grotesque indignity to women of the ‘rape clause’ any longer. It is dehumanising. It is cruel, and I will remove it from the statute book.”
Labour MPs shouted “more” and waved their order papers, as the Chancellor later added: “Because I am tackling fraud and error in our welfare system, because I am cracking down on tax avoidance, because I am reforming gambling taxation, I can announce today – fully costed and fully funded – the removal of the two child limit in full from April.”
After the reversal on welfare changes, Ms Reeves allegedly chose against completely scrapping the two-child cap on benefits. Nevertheless, she and Sir Keir Starmer have subsequently encountered mounting political pressure amid worries over possible leadership contests.
State Pension
The chancellor will announce that the state pension will grow in accordance with earnings by 4.8 per cent, surpassing the inflation rate. This indicates the full state pension rate will climb by £550, at a cost of approximately £7.8 billion.
The choice to increase benefits expenditure follows Ms Reeves being forced to abandon proposals for a welfare system transformation due to substantial resistance from backbenchers, at a cost of roughly £5 billion. Schemes to strip winter fuel payments from millions of pensioners were also ditched, leading to an extra £1.25 billion expense for the government.
Looking for more from MyLondon? Subscribe to our daily newsletters here for the latest and greatest updates from across London.
