Budget Changes: Carer's Allowance Taper Replaces Earnings Cliff

John Healey, the Chancellor of the Exchequer, will announce a major change to the Carer's Allowance in Wednesday's budget. The proposal replaces the current all-or-nothing earnings rule with a digital taper system. This shift aims to end a practice that has left many unpaid carers with substantial debts.

Under the existing rule, a carer loses their entire weekly allowance if their earnings exceed the limit by even one penny. The current weekly limit is £204, and the benefit pays out £86.45. A carer who earns £204.01 in a week forfeits the full £86.45. If this happens for a full year, the total overage is 52p, yet the repayment demand reaches £4,495.40.

The Department for Work and Pensions acknowledged it knew when carers breached these limits but did not send warnings. Officials stated that the responsibility to report changes rested with the carers. Many people went years without realizing they were over the threshold. This lack of awareness led to overpayment debts typically ranging from £2,000 to £5,000, with some cases reaching £20,000.

The new taper system changes the calculation. For every extra pound earned above the limit, only one pound of the allowance will be deducted. This ensures that carers are not financially worse off for working extra hours or receiving a pay raise. Healey described the previous system as flawed because an extra shift could leave someone poorer. He said the new approach gives carers the freedom to work a little more without suddenly losing all support.

An independent review commissioned by the government found that about 180,000 carers accumulated overpayment debts totaling £300 million between 2019 and 2025. The review, led by disability rights expert Liz Sayce, identified systemic issues, including the cliff-edge rule. It noted that carers suffered depression and hardship on a large scale. One case highlighted in the report involved a carer who was 15p over the limit due to a minimum wage increase outpacing the benefit threshold. She was later billed a £2,000 penalty for total above-limit earnings of just £5.

Campaigners welcomed the decision as a long-overdue reform. However, they noted that the new digital system will not be operational before the end of the decade. Carers UK stated that the old rule caused many to give up paid work or refuse promotions to avoid the financial risk. Emily Holzhausen, the director of policy at Carers UK, said the taper should give families more choice about working while caring.

Healey's budget includes other measures aimed at everyday costs. The government will make higher tax-free mileage rates permanent. The rate for the first 10,000 business miles will be set at 55p per mile, and the rate above 10,000 miles will rise to 35p per mile. The Treasury estimates this will benefit about 3 million people who use their own vehicles for work.

The budget also addresses parental support and import tariffs. An additional 150,000 new parents, including self-employed fathers and partners, will become eligible for support worth up to £194 a week. Ministers will remove import tariffs on more than 100 products, including baked beans, chocolate, and gherkins. The government will also add hundreds of Post Office drop boxes, bringing the total to 1,000.

Healey is expected to raise the national minimum wage by about 4% to approximately £13.20 an hour. The youth rate for workers under 21 will see a similar increase. Labour had previously promised to align the youth rate with the full rate, but ministers are now concerned that large increases might discourage companies from hiring young employees.

Pat McFadden, the work and pensions secretary, said the government listened to concerns about the cliff-edge. He confirmed the intention to end the rule that left carers worse off for taking on extra hours. Andy Burnham, the prime minister, described the changes as practical fixes for everyday problems. He said these measures would make life easier for nurses, parents, and unpaid carers.