John Healey to replace carer's allowance penalty with gradual taper in Wednesday budget

The UK benefits system has long included a provision that stripped unpaid carers of their entire weekly allowance if their earnings exceeded a specific threshold by even a small amount. Chancellor John Healey will announce the end of that provision in his budget statement scheduled for Wednesday.

The change introduces a digital taper system for Carer’s Allowance. Under the current rules, a carer who earns more than the £204 weekly limit forfeits the full £86.45 payment for that week. The new system will remove only £1 of the allowance for every additional £1 earned above the limit. This structure ensures that carers are not financially penalized for taking on extra shifts or receiving pay raises.

The cliff-edge rule created substantial debts for many unpaid carers. If a carer earned a penny over the limit for 52 weeks, the total excess was 52p. Under the old system, that carer would owe £4,495.40. The Department for Work and Pensions was aware when carers breached the limit but did not send warnings. Officials stated that the responsibility to report changes lay with the carers. Many carers remained unaware of their breaches for years, accumulating debts typically between £2,000 and £5,000, with some reaching £20,000.

An independent review commissioned by the government examined these overpayments. The review, led by disability rights expert Liz Sayce, found that approximately 180,000 carers accumulated £300m in overpayment debts between 2019 and 2025. The report identified systemic failures in the administration of the benefit. One case cited in the review involved a carer who was 15p over the limit weekly because the national minimum wage rose faster than the earnings cap. She was charged a £2,000 penalty for above-limit earnings totaling just £5.

Healey will present this measure as one of five everyday fixes in his budget. The government faces a tight fiscal environment due to global events, including the conflict in Iran. Treasury insiders indicate that the budget will focus on immediate adjustments rather than major structural changes. Major tax and spend decisions are deferred to next year’s spending review.

Other measures in the budget include making higher tax-free mileage rates permanent. The rate for the first 10,000 business miles will be set at 55p per mile, while the rate for miles above 10,000 will increase to 35p per mile. The Treasury estimates this change will benefit about 3 million employees and self-employed workers who use personal vehicles for work.

Healey also plans to provide parental support worth up to £194 a week to an additional 150,000 new parents. This group includes self-employed fathers and partners who were previously excluded from such support. The budget will also remove import tariffs on more than 100 products, including baked beans, chocolate, and gherkins.

The government will add hundreds of Post Office drop boxes, bringing the total to 1,000. This expansion aims to reduce queues for sending and returning parcels. Healey is expected to raise the national minimum wage by about 4 percent to approximately £13.20 an hour. Youth rates for workers under 21 will also increase by a similar amount, a move intended to address concerns that higher youth wages might discourage hiring.

Work and Pensions Secretary Pat McFadden stated that the government listened to carers' concerns about the cliff-edge. He said the administration intends to end the practice of leaving carers financially worse off for taking on a few more hours or receiving a modest pay rise.

Kirsty McHugh, chief executive of Carers Trust, called the removal of the cliff-edge an important and long-overdue reform. Emily Holzhausen, director of policy at Carers UK, noted that the taper should give families more choice about working while still providing care. The new digital system will not be implemented before the end of the decade due to technical requirements for building the infrastructure.