The Chancellor has scrapped the two-child benefit cap among a raft of tax and spending changes announced in the UK budget.
Income tax thresholds will be frozen until April 2031, meaning more people will pay higher rates.
The freeze in tax thresholds will result in 780,000 more basic-rate, 920,000 more higher-rate, and 4,000 more additional-rate income tax payers in 2029/30, raking in about £8bn for the Exchequer.
Other announcements include ending the National Insurance exemption for salary-sacrificed pension contributions above £2,000 per year from April 2029.
Salary sacrifice is an arrangement that allows both employers and their employees to save on tax by allowing staff to exchange part of their salary in return for their work contributing to their pension.
Because their salary is being exchanged, their gross salary is reduced, meaning that neither the employer nor the employee pays National Insurance contributions on the amount exchanged.
There will be a mileage-based charge on electric vehicles, the OBR says. The 5p cut in fuel duty remains until September 2026, when it will be reversed through a staggered approach.
On Wednesday morning, the Office for Budget Responsibility (OBR) published its forecast for the public finances and the economy ahead of Rachel Reeves’ announcement in Parliament.
The OBR has apologised and launched an investigation, describing it as a “technical error”.
Tory leader Kemi Badenoch said the Budget was a “total humiliation” for Reeves and “if she had any decency she would resign”.
Two-child limit axed
The two-child limit was introduced by the Conservatives and restricts Child Tax Credit and Universal Credit to the first two children in most households.
Estimates suggest that scrapping the cap could lift 350,000 children out of poverty and reduce the level of hardship for a further 800,000 kids.
Reeves has faced pressure from both the Scottish Government and from Scottish Labour to remove the limit in recent months.
The SNP have said Wednesday’s announcement “fails to deliver” for Scotland and confirms the chancellor’s “disastrous mismanagement” of the UK economy.
“They promised change but have delivered complete chaos, higher energy bills, higher food prices and a soaring cost of living – it’s no wonder their own MPs are now plotting to get rid of them,” SNP Westminster leader Stephen Flynn said.
Scottish finance secretary Shona Robison called the electric vehicle tax the wrong decision for motorists, the climate and Scotland, and she said there is “no serious support” for jobs and industry in Scotland.
“The Energy Profits Levy is to remain in place – risking thousands of jobs in Scotland and in the North East in particular. Yet again, Scotland is an afterthought,” Robison said.
“While the moves on the two child cap are welcome, they are long overdue and the UK Government has been forced into this position by the Scottish Government and other campaigners, and without a simultaneous change to the benefit cap, it falls well short of the bold anti-poverty measures we have been calling for from the UK Government.”
Scottish Labour leader Anas Sarwar has praised the budget for bringing wages up and pushing energy bills and child poverty down.
“I demanded a Labour budget rooted in Labour values, and that is what the Chancellor has delivered today,” Sarwar said.
“This budget means child poverty down, energy bills down, wages up and austerity rejected.
“Thousands of Scottish children lifted out of poverty, £150 off energy bills, £300 for those most in need, increases in the living wage and £820m extra for the Scottish Government.
“That means £10.3bn of additional resources has gone to the Scottish Government since Labour came to power, but we can’t have this opportunity squandered by the failing, incompetent and wasteful SNP.”
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