Carer Allowance Debt: £300m in overpayments wiped out as taper replaces cliff-edge

Between 2019 and 2025, approximately 180,000 unpaid carers accumulated overpayment debts totaling £300 million due to a rigid earnings threshold in the UK benefit system. Chancellor John Healey will announce the abolition of this rule in Wednesday's budget, replacing the existing cliff-edge with a digital taper. The change directly addresses a mechanism that penalized carers for earning even a small amount above a fixed weekly limit.

Under the current system, a carer earns the full benefit only if their income stays below a set threshold. Exceeding that limit by a single penny results in the forfeiture of the entire weekly payment. The current weekly earnings limit stands at £204, while the weekly carer’s allowance is £86.45. A carer who earns one penny over the limit for a full year breaches the threshold by 52p but is required to repay £4,495.40. The Department for Work and Pensions knew about these breaches but did not warn carers, placing the burden on the recipients to report changes themselves.

The new tapered system will remove only £1 of carer’s allowance for every additional £1 earned above the earnings limit. This adjustment ensures that carers are not financially worse off for working extra hours or receiving a pay rise. The government describes this as one of five everyday fixes included in the budget. Treasury officials noted that the fiscal backdrop is tight due to global events, including the conflict in Iran, which constrains the chancellor’s ability to make larger spending announcements.

The reform follows an independent review commissioned by the government and led by disability rights expert Liz Sayce. The review found that unpaid carers suffered depression and hardship on a large scale due to systemic injustices. In one specific case, a carer was penalized when the national minimum wage increased faster than the earnings limit. She was 15p a week above the limit despite unchanged hours and was later told she had incurred a £2,000 penalty for above-limit earnings totaling just £5. Some carers were even convicted of fraud because welfare officials used legislation designed for organized crime to recover the funds.

The budget also includes other measures affecting workers. Higher tax-free mileage rates will become permanent, with 55p per mile for the first 10,000 business miles and 35p per mile above that threshold. The Treasury stated this move will benefit about 3 million employees and self-employed individuals who use their own vehicles for work. Additionally, the minimum wage is expected to rise by about 4% to approximately £13.20 an hour. Youth rates will also increase by a similar margin, a shift from previous budgets that offered higher inflation-busting increases for younger workers.

Work and Pensions Secretary Pat McFadden stated that the government intends to end the cliff-edge that leaves carers financially worse off for taking on a few more hours or getting a modest pay rise. Kirsty McHugh, chief executive of Carers Trust, called the decision a long-overdue reform but urged the government to use the change as a springboard for wider reforms. Emily Holzhausen, director of policy at Carers UK, noted that a taper on the earnings limit should give families more choice about working while still providing care. The new digital system will not be introduced before the end of the decade due to technical requirements.

The budget will also benefit an additional 150,000 new parents, including self-employed fathers and partners who previously missed out, with parental support worth up to £194 a week. Ministers are removing import tariffs on more than 100 products, including baked beans, chocolate, and gherkins. The government is also adding hundreds of Post Office drop boxes, bringing the total to 1,000, to make it easier for people to send and return parcels without queuing. Andy Burnham, who came to power promising major change, said the changes are designed to make life a little easier for workers, parents, and unpaid carers.