Chancellor Healey to End Carer Allowance Penalty in Wednesday Budget

Chancellor John Healey will announce a major change to the carer’s allowance system during the budget presentation on Wednesday, October 28. The move eliminates the cliff-edge rule, a mechanism that has caused hundreds of thousands of unpaid carers to incur substantial debts. Under the previous system, earning even a penny above the weekly limit of £204 resulted in the loss of the entire £86.45 allowance for that week.

Healey stated that the old system made it irrational for carers to take on extra work. “That means doing an extra shift or getting a small pay rise can actually leave someone worse off. That cannot be right,” he said. The new digital taper system will remove only £1 of the allowance for every additional £1 earned above the threshold. This change ensures that carers are not financially penalized for working more hours or receiving wage increases.

The reform follows an independent review commissioned by the government. The review, led by disability rights expert Liz Sayce, found that approximately 180,000 carers accumulated £300 million in overpayment debts between 2019 and 2025. The report detailed how the Department for Work and Pensions failed to warn carers when they breached earnings limits. In one case, a carer was charged a £2,000 penalty after earning just £5 over the limit due to a minimum wage increase.

Work and Pensions Secretary Pat McFadden acknowledged the concerns raised by carers regarding the unfairness of the rule. “We have listened to [carers’] concerns about the cliff-edge built into the system which leaves them financially worse off for taking on a few more hours, or getting a modest pay rise, and intend to bring that to an end,” McFadden said. The department had previously insisted that the responsibility to report changes in earnings rested solely with the carers.

Campaigners welcomed the decision as a long-overdue correction. Emily Holzhausen, director of policy at Carers UK, noted that many carers avoided promotions or overtime due to the risk of falling into debt. “A taper on the earnings limit should give families much more choice about working and still caring,” she said. Kirsty McHugh, chief executive of Carers Trust, described the change as an important step but urged for further modernization of the benefit structure.

The new system will not be implemented until the end of the decade due to technical requirements for building the digital infrastructure. While the announcement is part of a series of everyday fixes in the budget, Healey’s fiscal room for maneuver remains limited by the current economic backdrop. The budget will also include a roughly 4% increase in the minimum wage to about £13.20 an hour and permanent higher tax-free mileage rates for workers.

Treasury sources indicated that the budget will focus on these targeted adjustments rather than sweeping tax changes. Major spending decisions are expected to be deferred until the spending review next year. The removal of the cliff-edge is one of five specific measures Healey has outlined to address common financial frustrations faced by households and workers.