The new digital taper system will see just £1 of carer’s allowance payments removed for every additional £1 earned above the earnings limit.

‘Unfair’ cliff-edge rule that punished carers to be abolished in budget Controversial mechanism that hit unpaid carers with huge penalties to be scrapped following Guardian investigation The controversial rule that led to unpaid carers being punished with penalties amounting to thousands of pounds is to be abolished, the Guardian can reveal.

The chancellor, John Healey is to announce a new digital taper system for carer’s allowance in Wednesday’s budget, effectively ending what is regarded as one of the UK benefit system’s most feared and unfair administrative practices.

The scandal was highlighted in a Guardian investigation that revealed how hundreds of thousands of carers have, through no fault of their own, run up life-changing debts in recent years after overstepping weekly earnings thresholds by just a few pence.

Those hefty debts were then ruthlessly chased down by welfare officials who pursued carers using legislation designed to recover funds from drug dealers and organised crime bosses. Some unpaid carers were convicted of fraud as a result.

The cliff-edge rule dictates that if a carer earns even a penny more than the weekly earnings limit allowed – currently £204 – they forfeit their entire week’s carer’s allowance payment, currently £86.45. A carer who earned a penny over the limit for a year would breach it by 52p but would be asked to repay £4,495.40.

Although the Department for Work and Pensions (DWP) was aware when carers breached earnings limits, it refused to warn them, insisting the onus was on carers to report any changes.

Thousands of carers spent long periods unaware of the breach, in some cases for years, resulting in overpayment debts typically of £2-£5,000 but in some cases as much as £20,000.

Under new rules set to be announced in the budget, the introduction of a tapered system instead of a cliff-edge means only £1 of carer’s allowance will be removed for every additional £1 earned above the earnings limit, meaning carers are no longer left financially worse off for working additional hours or receiving a pay rise.

The announcement is one of five more “everyday fixes” announced by Healey ahead of his budget on Wednesday. His room for manoeuvre is severely constrained by the tight fiscal backdrop, a result of global events including the conflict in Iran.

Treasury insiders have warned that the budget will be low-key, with difficult tax and spend decisions put off until the spending review next year. But there is anxiety among some Labour MPs over the scale of the announcements, after Andy Burnham came to power promising major change.

Among the other measures to come is making higher tax-free mileage rates permanent – with the 55p per mile rate for the first 10,000 business miles locked in, and increasing the rate above 10,000 miles to 35p per mile. The Treasury said the move would benefit about 3 million people – employees and self-employed – who use their own vehicle for work.

The chancellor’s intervention on the draconian cliff-edge rule comes after an award-winning Guardian investigation which revealed how the DWP had for years known of the profound distress it caused carers – including warnings from a DWP whistleblower – but did nothing about it.

The Guardian’s reporting triggered a government-commissioned independent review of carer’s allowance overpayments by disability rights expert Liz Sayce, published last year It found unpaid carers suffered depression and hardship on a huge scale after falling foul of a series of systemic injustices, including the cliff edge.

In one case highlighted by the review a carer was penalised when the national minimum wage had increased at a faster rate than the earnings limit. This put her 15p a week above the limit, even though her hours had not changed. Months later, she was told she had incurred a £2,000 penalty for above-limit earnings totalling just £5.

The review found the outdated design of carer’s allowance, coupled with longstanding DWP failures in its administration, meant about 180,000 carers ran up overpayment debts amounting to £300m between 2019 and 2025.

Campaigners welcomed the decision, calling it a “long-overdue reform” although there was disappointment the technical demands of building a new digital system to run the taper means it will not be introduced before the end of the decade.

Carers UK said the cliff-edge plays havoc with carers’ attempts to work part-time around their minimum 35 hours a week of caring duties, with many giving up paid work or refusing promotions, overtime or bonuses because of the risks.

John Healey, the chancellor, told the Guardian the carer’s allowance system had worked against carers. “That means doing an extra shift or getting a small pay rise can actually leave someone worse off. That cannot be right.

“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.”As well as unpaid carers, Healey’s budget will benefit an extra 150,000 new parents – including self-employed fathers and partners who have previously missed out – with parental support worth up to £194 a week.

Ministers are also removing import tariffs on more than 100 products, including baked beans, chocolate and gherkins, while also supporting farmers facing higher fertiliser bills and households that rely on paraffin.

There will also be hundreds more Post Office drop boxes, bringing the total to 1,000, to make it more convenient for people to send and return parcels without having to queue.

Healey will also reportedly raise the minimum wage by about 4% to about £13.20 an hour. However, in a sign of government concern over rates of youth unemployment, the chancellor is said to be about to raise youth rates by roughly the same amount, rather than the inflation-busting levels seen in previous budgets.

Labour came to office in 2024 promising to raise the youth rate, which applies to workers under 21, to the same level as the full rate. But ministers have become concerned in recent months that raising the minimum wage for younger workers could be dissuading companies from taking on young employees.

“We are taking on the big challenges facing the country. But that doesn’t mean losing sight of the everyday problems that cost people money or simply aren’t fair,” Burnham said.

“If you’re a nurse driving to work, a parent spending those precious first weeks with your new baby, or an unpaid carer picking up an extra shift, these changes will make life a little easier and put more money back in your pocket.”

Pat McFadden, the work and pensions secretary, said: “We have listened to [carers’] concerns about the cliff-edge built into the system which leaves them financially worse off for taking on a few more hours, or getting a modest pay rise, and intend to bring that to an end.”Kirsty McHugh, chief executive of Carers Trust said: “It is great news that the government is acting to remove the carer’s allowance cliff-edge. This is an important and long-overdue reform.

“We would urge the government to use this change as a springboard for a wider and deeper reform of carer’s allowance – a benefit that remains stuck in the 1970s and must be made fit for the future.”Emily Holzhausen, Carers UK director of policy, said: “We have countless stories from carers who have shared their deep fears of going just a few pence over the earnings limit and losing all of their benefit.

“It’s absolutely right that the chancellor is thinking of practical changes that will make their lives easier. A taper on the earnings limit should give families much more choice about working and still caring.”