The Commons chamber felt unusually charged on Wednesday—more like a budget night in the middle of a general election campaign than a routine fiscal set-piece. And at the centre of it all stood Rachel Reeves, the UK’s first female Chancellor, laying out a Budget that rewired nearly every corner of Britain’s welfare system. Not with tweaks. Not with pilot projects. But with tens of billions in new benefits spending, the scrapping of the two-child limit, and the largest structural shift to Universal Credit since its introduction.
Her message was blunt: after years of deep political fights over welfare, Labour is choosing a different direction—and they’re paying for it with tax rises, threshold freezes, and an aggressive crackdown on fraud and avoidance.
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Benefits Rise by 3.8%—And Billions Flow Back Into Households
Reeves confirmed that from April, working-age benefits—including Universal Credit, Personal Independence Payment (PIP) and child benefit—will rise by 3.8%, in line with September’s inflation figure reported by the Office for National Statistics (ons.gov.uk). That alone carries a £6 billion price tag.
For PIP claimants, the boost is immediate and visible. The highest combined PIP awards—daily living plus mobility—rise from £187.45 to £194.55 per week.
More than 3.8 million PIP recipients will feel that increase.
But this is only the first wave.
Universal Credit: A 2026 Uplift Unlike Any Other
Buried within the Budget documents is a shift with long-term consequences. The Universal Credit Act 2025 now legally forces annual increases above inflation until 2030. That means that after the 3.8% rise next April, claimants will receive an extra 2.3% boost on top in 2026.
- UC rise in April 2026: 6.2% total
- Extra value: around £6 per week for a single adult
- Annual gain: £312
If inflation remains volatile, these uplifts could push welfare spending far beyond earlier forecasts from the Office for Budget Responsibility (obr.uk).
And indeed, the new OBR tables show exactly that.
Welfare Spending Forecasts Surge
Government welfare spending is now projected to jump from:
| Year | Old Forecast | New Forecast |
|---|---|---|
| 2025/26 | £326.1bn | £333.0bn |
| 2029/30 | £373.4bn | £389.4bn |
A large part of this comes from reversing planned cuts:
- Winter fuel payment reductions scrapped
- Cuts to health-related benefits withdrawn
- Full abolition of the two-child limit added into forecasts
Spending on disability and health benefits alone is set to rise from £83.1bn (2025/26) to £103.6bn (2029/30).
The Two-Child Limit Is Gone—and So Is the “Rape Clause”
Reeves delivered the announcement with a level of moral conviction MPs hadn’t seen from a Chancellor in years. The two-child cap—long criticised by charities, child poverty researchers and women’s groups—is officially ending in April.
Reeves went further, calling the so-called “rape clause” “grotesque, dehumanising and cruel”, promising it will be removed entirely.
Labour MPs roared. Even some Conservative benches fell quiet.
The Treasury expects the policy’s removal to cost roughly £3 billion per year and lift hundreds of thousands of children out of poverty, according to modelling cited by the Joseph Rowntree Foundation.
Restructuring Disability Benefits: Cuts in One Area, Boosts in Another
The Budget reveals a restructuring inside Universal Credit’s health-related components:
- LCWRA (Limited Capability for Work Related Activity) payments halved from £432 to £217/month, then frozen.
- The standard UC allowance receives an above-inflation boost.
Estimated allowances based on JRF figures:
| Category | Current Weekly | New Weekly |
|---|---|---|
| Single adult | £92 | £98 |
| Couple | £145 | £154 |
The Treasury argues the reforms will “rebalance incentives,” while disability groups warn they may cut deep into support for those too ill to work.
Labour’s “Values Budget”: Tax Rises for the Wealthiest, Relief for the Poorest
Reeves framed the Budget as a values statement: protecting low-income households from the sharpest tax rises while ensuring those with “the broadest shoulders” contribute more. That meant walking away from some highly controversial proposals, including:
- Removing winter fuel payments from millions of pensioners (scrapped after backlash)
- A wider overhaul of disability benefits (delayed)
- Cuts to Motability (under consideration but not announced)
The U-turns cost billions—£5bn from dropped welfare reform plans and £1.25bn from reinstating winter fuel payments.
State Pension Rises 4.8% Under Triple Lock
The state pension will increase in line with earnings growth:
- 4.8% rise from April
- Full state pension increases by £550 a year
- Annual cost: £7.8bn
But the freeze in income tax thresholds means most pensioners will pay income tax by 2028 for the first time in British history.
Youth Support Becomes a Centrepiece
Reeves unveiled a sweeping youth package:
- £820m over three years for a “youth guarantee”
- Free under-25 apprenticeship training for SMEs
- Guaranteed college place, apprenticeship or job-support plan for all 18–21-year-olds
- Paid work—not benefits—offered after 18 months
The policy attempts to tackle the UK’s rising number of “NEETs”—young people not in work, education or training.
What Comes Next: Reviews, Reforms and More Political Battles
Two major reviews will shape the next phase of reforms:
- Stephen Timms – disability benefits review
- Alan Milburn – youth unemployment and welfare redesign
Both are due next year and could trigger the most consequential welfare reforms in a generation. Milburn has already warned there should be “no no-go areas.”
Fact Check: Is the Universal Credit Act 2025 Real Policy?
Yes.
The above-inflation UC increases are tied to legislation introduced this year, requiring annual boosts greater than inflation until 2030.
No major outlets have disputed this measure, and it is reflected in official OBR tables and DWP documentation. However, the political sustainability of above-inflation welfare growth through 2030 is already being questioned by fiscal hawks.
Reeves’ Budget didn’t nibble at the edges—it redrew welfare, pensions, child benefits and Universal Credit in one sweep. Billions more will flow into households, the two-child limit is gone, the state pension is rising sharply, and disability support is being reshaped.
But the price tag is enormous, and the Chancellor is leaning heavily on tax threshold freezes and anti-avoidance drives to fund it. The real test won’t be today’s headlines; it’ll be what happens when those OBR projections start colliding with the political, economic and fiscal pressures of the next five years.
FAQs:
When will the 3.8% benefits increase take effect?
April 2025, based on September’s inflation figure.
How much will PIP recipients gain from the increase?
The highest combined weekly award rises from £187.45 to £194.55.
When does the two-child limit end?
April 2025, including the removal of the associated “rape clause.”
What is the Universal Credit uplift for 2026?
A 6.2% increase—3.8% inflation plus an additional 2.3% mandated by the Universal Credit Act 2025.
