Report: UK Living Standards Will Plummet

Almost one in four children will be in poverty by the end of the decade because of the Government's welfare changes, a leading think tank has warned.

The "squeezed middle" will also be hit by the biggest drop in average incomes since the 1970s, according to a bleak report by the Institute for Fiscal Studies (IFS).

Typical families will see their annual income drop by around £2,000 by 2013, it said.

The IFS blames the tough economic situation and - more controversially - the Government's welfare policies.

Measures such as pegging benefits to the lower rate of inflation means payments will rise at a slower rate.

Labour has seized on the report to attack the Government's cuts.

Shadow work and pensions secretary Liam Byrne said: "David Cameron promised us he would not increase child poverty. Now we have the truth.

"The Tory-led Government's decision to cut too far and too fast this year will condemn hundreds of thousands more children to grow up poor.

"All the progress our country has made in a decade fighting the scar of child poverty has been wiped out by the decisions of just one year. A generation of children will not thank Cameron."

The IFS forecasts two years "dominated by a large decline" in incomes.

The average income will fall by around 7% between 2009 and 2012 - the largest three-year fall for 35 years.

This would mean a typical couple with two children and a total income of £30,056 would be £2,080 worse off in 2013 in real terms than they were in 2010 because their income would fall to £27,976.

And there is a stark warning that the Government will miss by a wide margin its legally binding target that no more than 10% of children should be in relative poverty by 2020.

The forecasts show 3.3m children - around one in four - will be in relative poverty by the end of the decade, compared with 2.5m children (19.2%) currently.

James Browne, one of the authors of the report, said: "Even if there were an immense increase in the resources made available, it is hard to see how child poverty could fall by enough to hit this supposedly legally-binding target in just nine years."

Alison Garnham, chief executive of the Child Poverty Action Group , said: "The Government must accept that you cannot fight poverty or improve life chances by making the poor poorer."

However, the report does say the Universal Credit - the Government's flagship welfare reform - will lift around 450,000 children and 600,000 working age adults out of relative poverty by 2020/21.

The Government has dismissed the findings, saying the IFS failed to consider the behavioural changes expected to result from its policies.

A spokesman said changes to the welfare system will help get more people back to work - lifting them out of poverty.

He said: "It is clear that sticking with the status quo which has had no meaningful long-term effect on poverty projections is not an option."