Payouts for "working-age benefits" like Universal Credit, Personal Independence Payment (PIP) and child benefits are set to rise
07:55, 24 Nov 2025
Rachel Reeves is poised to announce £15 billion of benefits spending at Wednesday's Budget according to reports - including enhanced payments for those receiving Universal Credit, Personal Independence Payment (PIP) and child benefits. It is widely anticipated the Chancellor will move to abolish the two-child benefit cap, with reports she would pledge to this emerging over the weekend.
She is poised to market the move - estimated to cost taxpayers £3billion per year - as a method to lift hundreds of thousands of children out of poverty. Ms Reeves is then poised to increase payouts for "working-age benefits" like Universal Credit, Personal Independence Payment (PIP) and child benefits in line with inflation, or 3.8 per cent, from April.
That move is anticipated to cost as much as £6 billion. This means payments for over 3.8 million PIP claimants are poised to increase by 3.8 per cent.
An increase of 3.8 per cent would see people on both the highest awards of the daily living and mobility components increase from £187.45 per week to £194.55.
All benefits increase each year in line with inflation, but in 2026 an additional 2.3% uplift on top of inflation is being added to Universal Credit due to a law change this year, the Universal Credit Act 2025, which sets out that the benefit will be increased by more than inflation each year until 2030. With September's inflation figures standing at 3.8%, this translates to an above-inflation boost of 6.2% for Universal Credit recipients from April 2026, delivering an additional £6 weekly for single claimants, totalling £312 across 52 weeks.
The modifications are anticipated to take effect in 2026, though ministers will retain ultimate authority over the final figures in the Budget.
These proposed benefit adjustments form part of a comprehensive reform that will slash the Limited Capability for Work Related Activity payments by half, dropping from £432 monthly to £217 before being frozen, whilst the standard rate receives an inflation-beating rise.
This would see Universal Credit climb from £92 weekly to £98 weekly for single claimants' standard allowance, or from £145 weekly to £154 weekly for couples, based on Joseph Rowntree Foundation data reported by the BBC.
Both the Conservatives and Reform swiftly attempted to paint the Chancellor as overseeing an expanding welfare budget whilst simultaneously imposing billions in tax hikes on working people.
The Chancellor declared her budget would reflect "Labour values" as she aims to shield lower earners from the heaviest tax increases whilst supporting those dependent on benefits.
This ensures those with the "broadest shoulders" will bear the greatest burden. The decision to ramp up spending on benefits was made after Ms Reeves was compelled to scrap plans to revamp the welfare system due to a large-scale rebellion by backbenchers, costing around £5 billion.
She had to abandon plans to deprive millions of pensioners of winter fuel payments, which cost the government an additional £1.25 billion.
Ms Reeves reportedly chose not to completely abolish the two-child cap on benefits following the U-turn over welfare reforms. However, she and Sir Keir Starmer have since faced increasing political pressure due to concerns about a potential leadership challenge.
Plans for a more restrained approach to scrapping the two-child cap have been abandoned in favour of total abolition. The chancellor will confirm that the state pension will increase in line with earnings, by 4.8 per cent, exceeding the rate of inflation.
This means that the full rate of the state pension will increase by £550, costing approximately £7.8 billion.
Andy Haldane, former chief economist at the Bank of England, cautioned that markets could lose faith in Reeves if she failed to control public spending: "Financial markets do need to see some signs that this government is capable of getting its arms around public spending. It really does. This is a vulnerable moment. There is a risk of a Wile E Coyote moment. The ground disappears beneath their feet in the financial markets. That is to be avoided at all costs."
The Chancellor is set to plug the gap in public finances with a "smorgasbord" of tax hikes, having scrapped plans to raise the basic rate of income tax.
She's expected to generate around £10 billion by freezing income tax thresholds for another two years, until 2030, a tactic known as a "stealth tax". This will also mean that from 2028, all those receiving the full rate of the state pension will be liable for income tax for the first time.
Reports suggest Reeves has considered cuts to the Motability scheme, which allows claimants to use their personal independence payment towards new cars. However, disability groups have warned of serious repercussions if she proceeds with the scale of changes that have been suggested.
In an article for the Sunday Times this weekend, Reeves indicated she remains committed to "reform" of the welfare system. Yet, this is unlikely to occur until after recommendations from Labour minister Stephen Timms's review of disability benefits and former cabinet minister Alan Milburn's review of young people not in employment, both due later next year.
Over the weekend, Milburn stated there should be "no no-go areas" when it comes to reforming the benefits system, and he has previously said the UK cannot afford to shy away from changes to welfare.
However, it's reported that the Chancellor is preparing to freeze income tax thresholds - a move that could push nine million working Brits into paying more.
Alongside the freeze, there are various reports suggesting a "mansion tax" on properties valued over £2million, a tax on gambling profits and a tax on bank profits will all be confirmed on 26 November.
Rachel Reeves is set to confirm plans for more than £20 billion of spending on benefits and the state pension in her budget, while announcing a series of tax increases that will impact middle and higher-income households.