Childcare costs, wages, tax traps: 10 ways Budget 2025 will hit (or help) your family

Spoiler: there are wins... but also some hidden traps.

1. Childcare changes: More funding, but will fees still rise?

Childcare funding is going up, but so are costs.

In Budget 2025, the Government confirmed additional investment for early years, increasing the hourly rates paid to local authorities for funded places. The aim? To help nurseries keep up with rising staffing costs, inflation and the expanding offer of free hours for working parents.

But according to the Office for Budget Responsibility (OBR), this uplift still won’t be enough to cover the real-world costs nurseries face. Despite the extra cash, the gap between what childcare actually costs and what the government pays providers continues to widen.

“Childcare funding and government support have driven nursery prices sharply upwards,” says Matthew Griffiths, CEO and founder of The Wealthy Parent Guide.

The government underpays nurseries for the 30 ‘free’ hours. While a parent typically pays £8–£12 per hour for childcare, the government pays nurseries as little as £5.88. That gap leaves nurseries no choice but to raise prices from their only revenue source: parents.

And if your household income is above £100,000? You're likely to feel the sharpest sting.

“Once you cross the £100,000 line, you lose access to support and face the full force of spiralling fees,” Griffiths warns.

“These are not oligarchs on superyachts; they are doctors married to teachers, marketing managers married to nurses… asking them to pay even more for childcare isn’t just unfair, it’s economically nonsensical.”

2. Minimum wage boost: More in your payslip – but a catch?

The National Living Wage is rising again in April 2025.

While exact figures will be confirmed closer to the date, the Office for Budget Responsibility (OBR) expects average pay growth to hold around 5% for the year, meaning millions of working parents and key workers can expect a bigger payslip.

More money in your pocket is always welcome – especially after years of rising prices. But experts warn that rising wages don’t always lead to feeling better off, particularly when higher pay pushes families into higher tax brackets or disqualifies them from certain forms of government support.

And it’s not just your tax bill that may rise, your childcare fees could too.

“Nursery costs are dominated by staff salaries,” says Matthew Griffiths. “When the lowest-paid employees receive a rise, pay for other roles must increase too to maintain seniority gaps. Add recent rises in employers’ national insurance contributions, and margins become razor-thin."

Nurseries can’t absorb these costs, so again, fees will go up.

If you’re a working parent juggling nursery fees, taxes, and rising bills, this pay rise may help you tread water, but it’s unlikely to feel like a windfall. And for childcare providers, it’s yet another cost pressure that may force some to increase prices – or even close altogether.

3. Two-child benefit cap: Was it scrapped?

Yes – and it’s one of the biggest headlines for families.

The two-child limit in Universal Credit has officially been removed. This long-criticised policy, which restricted child-related benefit payments to a family’s first two children, will no longer apply. According to the OBR, the change will benefit around 560,000 families, who will receive an average of £5,310 more per year.

The two-child cap has been a source of financial strain for many families, particularly those with three or more children, who often find themselves unsupported despite facing higher living costs. Scrapping the cap means a significant financial uplift for families who were previously denied help with their third or subsequent child, even when their household income was well below the poverty line.

This move doesn’t just offer a practical cash boost; it also marks a major shift in the Government’s approach to welfare and family support. The decision reverses a policy introduced in 2017, which campaigners say disproportionately impacted children in larger families, particularly in single-parent and working-class households.

Families already claiming Universal Credit and affected by the cap should start to see the increase as the policy rolls out. It’s expected to reduce child poverty rates and increase disposable income in some of the UK’s most financially vulnerable households.

It’s worth noting that this change won’t apply retrospectively, but it will apply to new and future claims, and any child born from now on will be included in benefit assessments regardless of birth order.

If your family was previously ineligible for extra Universal Credit due to the cap, it’s worth checking your updated entitlements using an independent benefits calculator like Turn2Us or EntitledTo.

4. Income tax threshold freeze: The ‘stealth tax’ you’ll feel

There’s no change to income tax thresholds in Budget 2025, and that’s a big deal.

Personal tax bands will remain frozen until at least 2028–29, even as wages continue to rise.

It’s a policy known as fiscal drag, and it means more of your earnings are taxed, even if your spending power hasn't really increased.

When tax thresholds don’t move in line with inflation or wage growth, families end up paying more tax without a tax rise ever being officially announced. It’s one of the quietest ways the Government increases revenue, and one of the most punishing for parents who are just about managing.

According to the Office for Budget Responsibility (OBR), by 2029–30 this freeze will pull:

• 780,000 more people into paying the basic rate of tax
• 920,000 more people into the higher rate
• And 4,000 into the additional rate (45%)

That’s over 1.7 million people paying more tax, not because they’re dramatically wealthier, but because the bands haven’t shifted.

The impact is especially harsh for parents earning around £100,000, where crossing the threshold means losing access to childcare support, personal tax allowances and other benefits, all at once.

“Frozen income tax thresholds are dragging more parents into what we call the £100,000 Childcare Tax Trap,” says Griffiths.
“According to CEBR forecasts, around 155,000 families will be caught in this position by 2030. The long-term consequence is bleak but predictable: more skilled, motivated professionals will leave the workforce because childcare is simply unaffordable without government help.”

“Parents in this situation tell me the same heartbreaking story, they’d love another child, but they cannot find an extra £2,500 a month to fund a second nursery place.”

5. Energy bills: Relief on the way?

There’s some cautiously good news on the horizon: the Government has introduced new energy policy changes aimed at bringing down household bills.

According to the Office for Budget Responsibility (OBR), these reforms are expected to slightly reduce the average cost of gas and electricity, but the biggest win isn’t immediate savings.

Energy bills remain one of the biggest monthly outgoings for UK households, especially during colder months. And while the changes announced won’t bring a dramatic drop in your next bill, they are expected to help slow the pace of future price increases by bringing down inflation over time.

Unlike the previous Energy Price Guarantee or cost-of-living payments, this change isn’t about direct financial assistance. Instead, it's part of longer-term structural reforms to energy markets and pricing. In short, it’s more of a slow burner than a quick fix.

For many families, especially those on variable tariffs or coming off fixed energy deals, any relief is welcome, but the bigger worry is how to cope with everything else rising at the same time.

6. NHS and children’s health: Any real fixes?

The Government has pledged more short-term NHS funding to deal with immediate pressures, including staff pay rises following strikes, and rising pharmaceutical costs.

This extra cash aims to keep core services running and reduce growing NHS backlogs.

But when it comes to maternity care and children’s health services, the Budget offers no new long-term strategy or structural reform. And that’s a worry.

Mums and babies are already feeling the strain. Midwife shortages, long waits for health visitor check-ups, delayed CAMHS referrals and pressure on A&E paediatrics have all become more common since the pandemic.

This Budget may ease the pressure temporarily, but experts say it won’t solve the deeper issues unless more systemic reform follows.

Maternity units in some areas are still short-staffed, despite efforts to improve recruitment.

Parents report struggling to get timely postnatal care, mental health support and speech and language referrals.

Many new mums are seeing fewer face-to-face check-ins with health visitors, or having appointments cancelled altogether.

While this Budget does acknowledge the NHS crisis, there is no specific investment in early years health, paediatric care or perinatal mental health services, all vital for setting up children (and mums) for long-term wellbeing.

7. Sugar tax extension: Will milkshakes cost more?

Yes – the sugar tax is being expanded to cover some milk-based drinks including bottled milkshakes, flavoured milks, and milk substitutes.

Health Secretary Wes Streeting confirmed the new levy during a statement to Parliament ahead of the Budget, saying the move is aimed at tackling childhood obesity and the disproportionate health impacts on low-income families.

Obesity robs children of the best possible start in life. So, I can announce to the House we're expanding the soft drinks industry levy to include bottles and cartons of milkshakes, flavoured milk and milk substitute drinks.

Until now, the Soft Drinks Industry Levy (SDIL), commonly known as the sugar tax, only applied to fizzy drinks. Milk-based drinks were previously exempt.

This change does not apply to drinks made fresh in cafes or restaurants (like barista lattes), only to pre-packaged drinks sold in bottles or cartons — the kind you find on supermarket shelves or in lunchboxes.

It’s unclear exactly how much prices will rise, but manufacturers may pass the extra cost on to families, potentially increasing the price of common children’s drinks and snacks.

While yoghurts, cereals, pouches and sweet snacks are not affected yet, this could mark the beginning of a broader expansion of health-related food taxes.

Top tip: Check food labels, as some “healthy” kids’ snacks still contain as much sugar as sweets. While there’s no additional information on when or how much the new levy will cost at the checkout, it’s still worth keeping an eye on sugar content and portion sizes.

8. Stamp duty: Any help for families needing more space?

Budget 2025 did not include any stamp duty cuts, exemptions, or fresh schemes to support families trying to move home, despite ongoing affordability issues and rising mortgage costs.

Many growing families are stuck in homes that no longer meet their needs, whether it’s not enough bedrooms, no garden, or simply not being in catchment for a preferred school. But the combined costs of stamp duty, legal fees, and higher monthly repayments are stopping families from making the move.

With housing costs still high and interest rates slowly easing, families were hoping for support to help them upsize or relocate, but the Budget offered no relief.

The OBR confirms that the Government is still relying on existing housing policies – including Help to Buy ISAs and the First Homes scheme – but these are mostly aimed at first-time buyers, not families looking to upsize.

Meanwhile, house price growth is expected to pick up again in 2026, meaning families could be priced out of a move if they can’t act soon.

While some parents were hoping for temporary stamp duty relief for families with children, new schemes to help second steppers and better incentives for energy-efficient home improvements, there were no new measures included in this Budget. Many families will continue facing tough choices, like staying cramped or relocating far from support networks in search of affordability.

9. Youth employment: What about older teens?

The Government is investing in a new package of youth employment and skills initiatives, aimed at boosting work participation among 16 to 24-year-olds, particularly those not in education, employment or training (NEETs).

The measures are part of a wider welfare policy shift that focuses on helping young people move into sustainable work through targeted support, training placements and local job schemes.

For parents of older teens and young adults, especially those finishing school or unsure about going to university, these schemes could offer more structured pathways into work. With the cost of living still high and uni no longer the default route for many, skills-based careers and apprenticeships are gaining appeal.

But experts warn that success will depend on how well the programmes are rolled out locally.

The Office for Budget Responsibility (OBR) notes that the investment has potential to lift youth employment rates, but also cautions that "effectiveness will depend heavily on delivery and local coordination", meaning results could vary significantly across the country.

Programmes may include skills bootcamps, local work placements, and links with welfare support, with a strong focus on getting NEET young people into work, rather than education pathways. The schemes could be valuable for teens needing alternatives to A-levels or university.

Details are still emerging, but if your teen is leaving school soon or already out of education, check your local council or Jobcentre for updates on rollout and eligibility.

10. Mortgage costs: Is help coming for rising repayments?

There’s no new mortgage relief or support for homeowners in Budget 2025, despite continued pressure on family finances.

That means no help for parents remortgaging, no new fixed-rate protection schemes, and no first-time buyer incentives beyond existing programmes.

According to the Office for Budget Responsibility (OBR), average mortgage repayments have risen by a staggering 47% since 2021. And with many fixed-rate deals due to expire in 2025, families could be facing another sharp rise in monthly payments, in some cases, hundreds of pounds more per month.

The OBR warns that housing affordability remains tight, particularly for growing families trying to upsize. Even with inflation falling and interest rates stabilising, house prices are still high, and banks remain cautious with lending criteria, making it harder for families to move, remortgage or buy their first home.

While there’s no direct homeowner support in this Budget, some parents may eventually feel a small benefit if falling inflation leads to lower interest rates. But that’s a slow process, and won’t help families facing immediate mortgage shocks in 2025.

While some parents were hoping for targeted mortgage relief for families coming off fixed deals, a revamped Help to Buy scheme or upport for second-steppers needing more space, with no new policies, families are left navigating rising housing costs alone, at a time when many are already stretched by childcare fees, higher taxes, and food bills.

So, what does Budget 2025 really means for parents?

There are clear wins in this year’s Budget, notably the scrapping of the two-child benefit cap and another rise in the National Living Wage. These moves will bring meaningful support to many lower- and middle-income families, especially those with more than two children or working in lower-paid sectors.

But for many parents, especially those balancing rising childcare fees, frozen tax thresholds and higher mortgage payments, it still won’t feel like they’re getting ahead. The lack of targeted support for housing, childcare reform and parental tax relief means many families are simply treading financial water, covering the basics, but with little left over for savings, activities or peace of mind.

And while some changes offer short-term boosts, others, like stealth taxes and ongoing nursery cost hikes, could quietly erode any gains over time.