Chancellor to end carer's allowance debt trap of £300m

Chancellor John Healey will announce the end of the carer's allowance earnings limit in Wednesday's budget, a move designed to stop unpaid carers from losing their entire weekly benefit if they earn even a small amount above the current threshold.

The existing rule, known as a cliff-edge, required carers to forfeit their full payment of £86.45 if their weekly earnings exceeded £204 by a single penny. This administrative practice forced many individuals into repayment debts that often reached into the thousands of pounds.

The new system will replace this binary penalty with a digital taper. Under the proposal, for every additional pound a carer earns above the limit, only one pound will be deducted from their allowance. This adjustment ensures that working extra hours or receiving a modest pay rise no longer leaves carers financially worse off.

The Department for Work and Pensions identified approximately 180,000 carers who accrued overpayment debts totaling £300m between 2019 and 2025. These debts arose because the department did not warn carers when they breached the limit, leaving the responsibility for reporting changes on the individuals themselves.

In some cases, carers faced penalties for earning just a few pence over the limit. One example cited in an independent review involved a carer who was 15p over the limit for several months due to a rise in the national minimum wage. She was subsequently asked to repay £2,000 for above-limit earnings that totaled only £5.

Welfare officials used legislation typically reserved for recovering funds from organized crime to chase these debts. Some carers were convicted of fraud during the recovery process. The scandal prompted a government-commissioned review by disability rights expert Liz Sayce, which found that unpaid carers suffered widespread depression and hardship as a result of the system's design and administration.

Healey described the change as one of five everyday fixes included in the budget. He noted that the current system meant doing an extra shift could leave someone worse off, a situation he said cannot be right. The taper will give carers the freedom to work a little more without suddenly losing all their support.

The announcement comes as the government faces a tight fiscal backdrop influenced by global events, including the conflict in Iran. Treasury insiders indicated the budget will be low-key, with major tax and spend decisions deferred until the spending review next year. Labour MPs have expressed anxiety about the scale of announcements following the party's election promises of major change.

Other measures in the budget include making higher tax-free mileage rates permanent, benefiting about 3 million people who use their own vehicles for work. The 55p per mile rate for the first 10,000 business miles will be locked in, while the rate above that threshold will increase to 35p per mile.

Carers UK said the cliff-edge often prevented carers from working part-time around their minimum 35 hours of caring duties. Many gave up paid work or refused promotions due to the risk of breaching the limit. The new taper is expected to give families more choice about working while still caring.

The budget will also introduce parental support worth up to £194 a week for an additional 150,000 new parents, including self-employed fathers and partners who previously missed out. Ministers are removing import tariffs on more than 100 products, such as baked beans and chocolate, and adding hundreds of Post Office drop boxes to reach a total of 1,000.

Healey is also set to raise the minimum wage by about 4% to approximately £13.20 an hour. Youth rates will increase by a similar amount, a decision driven by concerns that higher increases might discourage companies from hiring young employees. Work and Pensions Secretary Pat McFadden stated the government intended to end the cliff-edge after listening to carers' concerns about the system's unfairness.