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Families in Britain 'facing £3,000 cuts to income'

Are you on a January health kick?: AFP/Getty Images
Are you on a January health kick?: AFP/Getty Images

Families across Britain face cuts in their incomes of up to £3,000 a year as a benefits clampdown bites far harder, leading economists warned today.

The Institute for Fiscal Studies said benefit cuts since the 2015 general election had so far been limited – but that there is more pain yet to come, especially as inflation rises towards three per cent.

It highlighted three major changes which were still due to have their full impact on millions of households across the country:

The continued freeze in most working-age benefit rates until March 2020. The IFS said that under current inflation forecasts this would reduce the real value of benefits by five per cent between now and 2020 and government spending by more than £3 billion a year.

Cuts to tax credits for families with children — limiting entitlement to two children and removing the “family element” — to reduce government spending by £5 billion a year.

The roll-out of universal credit, also expected to eventually reduce government spending by £5 billion a year.

IFS senior research economist Andrew Hood said: “While cuts to benefits have been small as of yet, government plans for future cuts would significantly reduce the incomes of low-income working-age households, particularly those with children.”

Several measures only affect new claimants and some will take years to be fully implemented, so many families will not actually see immediate big losses in their income.

But the IFS analysis identified that working-age families, with no one in paid work, in the lowest 10th of the income range could be £3,000 a year worse off on average compared to £2,500 for the second lowest group and just £66 for the richest people.

The research highlighted that those with incomes of up to £29,609 for a family with two children under 14 will see income cuts ranging from four per cent to 10 per cent once all measures proposed since 2015 come into effect.

The biggest change to taxes and benefits in this Parliament had been increases to the personal tax allowance and 40p rate threshold, costing the Government around £5 billion a year, according to the study.

Millions of middle-income families had benefited from reforms in the past two years, but the poorest had been hardest-hit and richer working-age households with children saw their income fall by more than £5,500.

Pensioners have been largely protected from benefit cuts since 2010.