Carers' debt trap ends in budget

Eighteen thousand pounds. That is the maximum debt a single unpaid carer accrued in recent years for earning a few pence over the weekly limit. The Department for Work and Pensions chased these balances from 2019 through 2025, collecting a total of 300 million pounds from approximately 180,000 households. Chancellor John Healey will announce the end of that penalty structure in his budget speech on Wednesday.

The current rule creates a financial cliff. If a carer earns more than 204 pounds in a week, they lose the entire 86.45 pound carer's allowance payment for that period. A carer who exceeds the limit by a single penny for 52 weeks owes the government 4,495.40 pounds. Healey’s plan replaces this binary cut with a digital taper system. Under the new model, only one pound of allowance is removed for every additional pound earned above the threshold.

This change ensures that working extra hours or receiving a pay raise no longer leaves carers financially worse off. The government framed this as one of five everyday fixes in a budget constrained by global fiscal pressures, including the conflict in Iran. Treasury insiders described the announcement as low-key, noting that major tax and spending decisions are deferred until the spending review next year.

The reform follows an independent review commissioned by the government and led by disability rights expert Liz Sayce. The report found that the system’s design, combined with administrative failures, caused depression and hardship for many claimants. One documented case involved a carer whose earnings rose by 15 pounds per week due to a national minimum wage increase. She was later penalized 2,000 pounds for total above-limit earnings of just 5 pounds.

The DWP previously declined to warn carers when they breached the limit, stating that the responsibility to report changes lay with the claimants. In some instances, officials used legislation designed to recover funds from organized crime groups to pursue debts. This approach led to some unpaid carers being convicted of fraud.

Healey told The Guardian that the system had worked against carers. He stated that doing an extra shift or getting a small pay rise could leave someone worse off. He added that the taper gives carers the freedom to work a little more and earn a little more without suddenly losing all their support.

Work and Pensions Secretary Pat McFadden said the department listened to concerns about the cliff-edge. He said the government intends to end the rule that leaves carers financially worse off for taking on a few more hours or getting a modest pay rise. The new digital system will not be fully operational before the end of the decade due to technical demands.

The budget includes other measures affecting household finances. Healey will make higher tax-free mileage rates permanent, locking in 55 pence per mile for the first 10,000 business miles and increasing the rate above that threshold to 35 pence per mile. The Treasury said this would benefit about 3 million people who use their own vehicles for work.

Ministers are also removing import tariffs on more than 100 products, including baked beans, chocolate, and gherkins. The government plans to add hundreds of Post Office drop boxes, bringing the total to 1,000. Additionally, the minimum wage will rise by about 4 percent to approximately 13.20 pounds an hour. Youth rates for workers under 21 will increase by a similar amount, a move that differs from the inflation-busting hikes seen in previous budgets.

Carers Trust chief executive Kirsty McHugh called the move a long-overdue reform. She urged the government to use the change as a springboard for a wider overhaul of a benefit she described as stuck in the 1970s. Emily Holzhausen, policy director at Carers UK, said a taper on the earnings limit should give families more choice about working and still caring.