DWP issues update on six major changes impacting benefits and state pensions

The Department for Work and Pensions (DWP) has outlined six major changes that will impact millions of people claiming state pensions and benefits following the first Budget under the new Labour government.

In her speech to MPs on Wednesday afternoon, chancellor Rachel Reeves outlined her plans to raise £40 billion through tax rises in order to patch up a "black hole" in the nation's finances. While she kept her promise not to increase taxes on workers' pay, she hit employers with higher rates of National Insurance, hiked Capital Gains Tax and introduced reforms to inheritance tax.

Meanwhile, for people claiming benefits there was a mixed bag of measures. The chancellor announced that more than a million families on Universal Credit would get a £420 boost thanks to changes to the way debt is repaid. Carers are also in line for a boost to their income after the earnings threshold was raised.

READ MORE: DWP will send £25 one-off payments to eligible households over winter

However, she also confirmed benefits would rise by just 1.7 per cent from next April, a move that critics had previously warned would "barely touch the sides" for people struggling on a low income. There was better news for state pensioners who are getting a 4.1 per cent rise, although the Budget also confirmed Labour's plans to push ahead with means-testing the Winter Fuel Payment this year.

On Thursday, the DWP issued an update on all the changes announced in the budget that will impact people reliant on the welfare system. The DWP outlined six separate changes that claimants will be able to see in the coming months and years.

Work and pensions secretary Liz Kendall said: "We promised change, and that is what we will deliver. For too long, millions of people have been denied opportunities to work and build a better life, and too many children are growing up in poverty, harming their life chances and our country’s future.

"This Budget shows the first steps in our plan to drive up opportunity and drive down poverty in every corner of the country. There is still much more to do, but this Budget has shown change has begun."

Here are the six key changes for benefit claimants and state pensioners.

Boost for 1.2 million families on Universal Credit

Around 1.2 million people on Universal Credit will be £420 better of each year as a result of a change to the way debt is repaid, the DWP said.

The DWP will introduce a new Fair Repayment Rate, which will cap the amount the that can be deducted from Universal Credit payments.

At the moment, the government can deduct 25 per cent of a household's Universal Credit standard allowance to pay back debt. But from April next year, the rate will drop to just 15 per cent, meaning households will hold onto to more of their money.

The new measure has been welcomed by children's charity Save The Children UK. Policy advisor Ruth Talbot said: "The rate at which some of the poorest families in the UK have been required to pay back debt to the UK Government was utterly unfair and unsustainable. We welcome this announcement as a first step, as we know it will have a significant impact for families and put more money in their pockets for food, toys, clothes and books."

Thousands more to get Carers Allowance

The earnings threshold for Carers Allowance is going to increase by £45 a week, meaning around 60,000 more carers will have access to the benefit, according to the government.

The DWP pays £81.90 a week to carers who care for someone for 35 hours a week or more. Currently, you are only entitled to the payment if you earn less than £151 a week. But from April 2025 the earnings threshold will increase to the equivalent of 16 hours a week at the National Living Wage, meaning carers will be able to earn £196 a week before losing their benefit entitlement.

Ms Reeves said the change represents the largest increase to the benefit since Carers Allowance was introduced in 1976 and will mean that a carer can earn over £10,000 a year while still receiving the weekly payments.

The government has also launched an independent review into Carers Allowance overpayments, which will be led by Liz Sayce OBE. The review comes after the DWP was criticised for its "cliff edge" approach to the benefit, which sees some carers receive demands for thousands of pounds in repayments after inadvertently passing the earnings threshold, sometimes by as little as £1.

State pension and benefits increases confirmed

The Budget confirmed some news that benefit claimants and state pensioners have been eager to hear - how much their payments will rise by from next April. Benefits are usually uprated inline with inflation, while state pension increases are calculated using the triple lock guarantee.

Ms Reeves confirmed that benefits will increase by 1.7 per cent, while state pensions will increase by 4.1 per cent.

The DWP said that a 4.1 per cent increase in state pensions would mean that "those on the full rate of the new State Pension will now see an increase of over £470 per year".

A 1.7 percent increase to working-age benefits will be "worth an average £12.50 per month for a family on Universal Credit", the DWP said.

More money for the Household Support Fund

The DWP said it will "help struggling families and pensioners facing the greatest financial hardship" with £1 billion worth of funding for local councils. The money will be used to extend the Household Support Fund for an additional year and maintain Discretionary Housing Payments in England and Wales.

The Household Support Fund, introduced by the Tories to help those struggling most during the cost of living crisis, is divided up between local councils, which are then free to choose how best to allocate the cash.

Many local authorities use the money to fund free meals for children during the school holidays or hand out cost of living payments, supermarket vouchers or energy bill support for those on the lowest incomes. The fund was due to end in March 2025, but will now run until March 2026.

Discretionary Housing Payments are also provided by local councils and can provide help with rent or housing costs to those on Housing Benefit or Universal Credit.

DWP to shift focus 'from welfare to work'

The DWP is launching major reforms that will shift the department's focus "from welfare to work", it says. As part of the plans, the DWP announced a £240 million package that it says will "open up opportunities to millions of people left behind and denied the opportunity to get into work and get on at work".

The DWP said the changes will address "spiralling economic inactivity and a record 2.8 million people locked out of work due to long term sickness". The government has given itself a target of taking the employment rate from 75 per cent up to 80 per cent, which would mean bringing an additional 2 million people into work.

A 'Get Britain Working' white paper, due to be released in autumn, will develop a new jobs and careers service to help get more people into work and introduce a new Youth Guarantee so that all young people are given the opportunity to earn, the government said.

Major crackdown on benefit fraud

The DWP also aims to tackle benefit fraud with a series of new measures. The department wants to improve the way it detects and prevents fraud and error in the hope of saving an estimated £7.6 billion by 2029.

The government said it plans to hire 3,180 additional fraud and error staff across the DWP and HMRC.

The upcoming Fraud, Error and Debt Bill will give the government new powers to check benefits are being paid correctly using data shared by banks and financial institutions. The DWP will be able to automatically recover debt by accessing claimants bank accounts.