The Budget: 13m Families To Lose Average Of £260

As many as 13 million families will lose an average of £260 each as a result of changes outlined in George Osborne's Budget on Wednesday, the IFS says.

The Institute for Fiscal Studies said that three million families will also lose an average of £1,000 each as a result of changes to the benefits system.

Paul Johnson, the IFS's director, said: "The biggest single cut to welfare spending is set to come from extending the freeze in working age benefits, tax credits and local housing allowance out to 2020.

"That will affect 13 million families who will lose an average of £260 a year as a result of this one measure.

"The next biggest cut comes from the reduction to work allowances in Universal Credit. This reform will cost about 3 million families an average of £1,000 a year each."

Mr Johnson, offering his organisation's verdict on the Chancellor's plans, had already said Mr Osborne was "taking a bet" with the living wage - the centrepiece of Wednesday's announcements.

The "pay rise" came as the Chancellor said he planned to cut £12bn from the welfare budget through measures such as changes to tax credits.

George Osborne said the £7.20-an-hour 'living wage', unveiled yesterday as part of a "plan for working people" , would take effect in April for workers over 25.

It will increase to £9-an-hour by 2020.

But Labour accused the Chancellor of trying to "con" the public, saying millions will be worse off overall because of significant welfare cuts.

Mr Osborne said the living wage amounted to a direct pay rise for 2.5 million people and that those currently on the minimum wage would see a £5,000 wage increase by the end of the decade.

Budget: The Key Points You Need To Know

The independent Office for Budget Responsibility (OBR) has also sounded a note of caution about the living wage pledge.

It believes 60,000 jobs will be lost because of the new wage and that four million working hours could be lost each week.

Despite the concerns, Mr Osborne said the OBR still maintained one million jobs would be created by 2020 if growth carries on at 2.4% a year.

The national minimum wage for under-25s, currently £6.50 an hour, will continue to be set by The Low Pay Commission.

The Chancellor told Sky News that Wednesday's Budget offered a "new contract with the country".

"It says to businesses we're going to cut your taxes but you have to pay higher salaries.

"It says to people we'll make sure you're going to get a proper wage, a national living wage, but there are going to be less benefits.

"And it says to the country we're going to spend less but we're going to live within our means and have economic security.

"I think that new contract, that new centre of British politics, is going to be a settlement that the country are happy with."

Labour interim leader Harriet Harman said the Budget was "more about political tactics designed by the Chancellor to help him move in next door".

Among the cuts announced were: reducing the benefits cap to £23,000 in London and £20,000 elsewhere; freezing working age benefits for four years; scrapping student grants; and slashing the income threshold at which families can receive tax credits by almost half - from £6,420 to £3,850.

The first all-Tory Budget in 20 years also saw an increase in the level at which working people pay income tax to £11,000; scrapping inheritance tax for estates under £1m; and raising slightly the threshold for the 40p tax band.