The 2025 Benefits Freeze: Essential Information and Tips to Manage Its Financial Impact

As Britons plan their budgets for the upcoming financial year, it’s important to know which allowances are going to change and which won’t. While some allowances such as Universal Credit and State Pension will increase in April 2025, some allowances will remain the same. These frozen allowances could leave some individuals and families facing financial difficulties.

Let’s take a look at the three key allowances and their thresholds that won’t increase this year, understanding why they have been frozen and how this will affect those claiming them.

Housing

Local Housing Allowance (LHA) is an important allowance used to calculate Housing Benefit for private tenants in England, Scotland and Wales. Sadly, the allowance will remain frozen at its current level until 2026 with no increase.

In April 2024 the Government revised the LHA to correspond to the cheapest 30% of local rents, based on September 2023 figures. Prior to this, it was frozen for four years and old figures from 2019 were used. The freeze means that Housing Benefit payments for private tenants will not increase, while rents continue to rise.

The impact:
The Joseph Rowntree Foundation estimates that 20,000 private tenants, including 10,000 children, will face poverty by 2026. Labour MP Helen Hayes has criticised the freeze and urged the Government to reconsider LHA rates so as not to increase demand for temporary accommodation.

Also, bear in mind that Housing Benefit is being phased out and most recipients will be moved onto Universal Credit by the end of 2024, which could make affordability even more challenging for tenants.

Benefit Cap

The allowances cap, which was introduced in 2013, sets how much allowance a household can receive overall. Although most allowances, such as Universal Credit, are being increased in line with inflation, the allowances cap threshold will remain frozen for another year.

Household Type	Outside London	Inside London
Couple or single parent	£423.46 p/w (£1,835 p/m)	£486.98 p/w (£2,110.25 p/m)
Single adult	£283.71 p/w (£1,229.42 p/m)	£326.29 p/w (£1,413.92 p/m)

The impact:
There are some claimants who fall outside the allowances cap, such as people receiving Universal Credit because of a disability, caring responsibility or functional tax credits. But even so, the cap could hit poorer households harder, particularly in areas where the cost of living is high.

Savings

The capital limit is the limit that determines how much you can save to remain eligible for allowances. The Government has not made any changes to this limit and it will remain the same for the next financial year.

• Savings up to £6,000: Full allowance eligibility.
• Savings between £6,000 and £16,000: Reduced allowances (cut by £4.35 for every £250).
• Savings above £16,000: No allowance eligibility.

Its impact:
The limit is meant to help people who are facing financial difficulties, but critics say it punishes savers. Due to inflation and rising costs of living, frozen capital limits can cause difficulties for individuals who have to dip into their savings to meet day-to-day expenses, especially when they are under financial pressure.

Conclusion

These frozen allowances are likely to cause confusion for many households. With inflation and rising costs, if no adjustments are made to these allowances, affected individuals may find it difficult to afford housing, living and deal with unforeseen circumstances.

Campaigners and MPs are urging the Government to reconsider these changes, but for now, those who rely on these allowances will need to take these limits and frozen allowances into account when planning their budgets for next year.

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