Budget to cap carer repayment debts at 100% of extra income

The UK government will replace the binary penalty structure of the carer's allowance with a proportional reduction system in next week's budget. Chancellor John Healey is scheduled to announce the change on Wednesday, a move designed to address a specific administrative flaw that has generated substantial debt for unpaid carers.

Under the existing framework, a carer who earns more than the weekly limit of £204 forfeits the entire £86.45 weekly payment. A breach of just one penny over the limit results in the loss of the full amount. Over the course of a year, a carer who exceeds the limit by 52p in total earnings faces a repayment demand of £4,495.40. The new digital taper will reduce the allowance by only £1 for every additional £1 earned above the threshold. This adjustment ensures that working more hours or receiving a pay rise does not result in a net financial loss.

The Department for Work and Pensions has been aware of the rule's impact for years. An independent review commissioned by the government and led by disability rights expert Liz Sayce found that approximately 180,000 carers accumulated overpayment debts totaling £300 million between 2019 and 2025. Typical debts ranged from £2,000 to £5,000, though some cases reached £20,000. The review noted that the DWP often failed to notify carers of breaches, leaving many unaware of their liability for extended periods.

Healey described the previous system as working against those it was meant to support. "That means doing an extra shift or getting a small pay rise can actually leave someone worse off," he told The Guardian. "So at this budget on Wednesday, we're ending that cliff-edge. Carer's allowance will instead taper as earnings increase, giving carers the freedom to work a little more and earn a little more without suddenly losing all their support."

The announcement is part of a set of five measures labeled as everyday fixes. The Treasury indicated that the overall budget will be constrained by fiscal pressures, including the economic impact of the conflict in Iran. Other changes include making the 55p per mile tax-free rate for the first 10,000 business miles permanent and increasing the rate for miles above that to 35p. The government estimates this mileage change will benefit approximately 3 million employees and self-employed individuals who use personal vehicles for work.

Carers UK director of policy Emily Holzhausen said the taper should provide families with more choice regarding employment. "It's absolutely right that the chancellor is thinking of practical changes that will make their lives easier," she said. The new digital system will not be operational before the end of the decade due to technical requirements for its construction. Work and Pensions Secretary Pat McFadden stated the government intends to end the rule that leaves carers financially worse off for taking on additional hours.