John Healey to wipe £300m in carer debts with new digital taper rule

Chancellor John Healey will end the carer's allowance penalty rule in his budget on Wednesday.

The government is scrapping the existing system where earning even one penny above the weekly limit of £204 resulted in the loss of the entire £86.45 allowance payment for that week. Instead, a new digital taper will reduce the benefit by only £1 for every additional £1 earned. This change ensures that carers are not financially worse off for working extra hours or receiving pay raises.

The previous rule created a trap for unpaid carers. A person who exceeded the limit by just one penny over a full year would owe a repayment of £4,495.40. The Department for Work and Pensions knew about these breaches but did not warn carers, leaving many unaware of their debt for years. Some carers faced debts as high as £20,000 and were pursued using legislation designed for drug dealers and organized crime bosses. In one case, a carer was penalized £2,000 for earning a total of just £5 over the limit because the minimum wage rose faster than the earnings threshold.

An independent review by disability rights expert Liz Sayce found that the system's design and administrative failures caused 180,000 carers to accumulate £300 million in overpayment debts between 2019 and 2025. The review noted that carers suffered depression and hardship due to these systemic injustices. Healey described the old system as working against carers, stating that doing an extra shift or getting a small pay rise should not leave someone worse off.

The taper will not be in place by the end of the decade due to the technical work required to build the new digital system. Carers Trust called the move a long-overdue reform but urged the government to use it as a starting point for deeper changes to a benefit that has not been updated since the 1970s. Carers UK noted that the old rule often forced carers to refuse promotions or overtime because of the risk of losing their support.

Healey announced the carer changes as one of five everyday fixes ahead of his budget. His fiscal room for maneuver is limited by the global conflict in Iran, leading Treasury insiders to expect a low-key budget with major spending decisions delayed until next year's review. Among the other measures is making higher tax-free mileage rates permanent, with 55p per mile for the first 10,000 business miles and 35p per mile above that. This change will benefit about 3 million people who use their own vehicles for work.

The budget will also expand parental support to an extra 150,000 new parents, including self-employed fathers and partners, with payments worth up to £194 a week. Ministers are removing import tariffs on more than 100 products, such as baked beans and chocolate, and are supporting farmers with higher fertilizer bills. The number of Post Office drop boxes will increase to 1,000 to reduce queues for parcel returns.

Healey is expected to raise the minimum wage by about 4% to roughly £13.20 an hour. Youth rates for workers under 21 will see a similar increase, though this falls short of the inflation-busting levels seen in previous budgets. Labour promised to equalize youth and full rates when it came to power in 2024, but ministers are now concerned that large hikes may discourage companies from hiring young employees. Andy Burnham said the changes aim to address everyday problems that cost people money or are simply unfair.