Around 2.6 million families '£1,600 a year worse off' after benefit changes


Around 2.6 million working families will be an average £1,600 a year worse off as a result  of benefit changes confirmed in Chancellor George Osborne's Spending Review, a respected economic thinktank has found.

Despite Mr Osborne's decision to scrap proposed cuts to tax credits due to come in next April, the Institute for Fiscal Studies said that his  plans still envisage reducing non-pension benefits to their lowest level as a share of national income for 30 years.

IFS director Paul Johnson said Mr Osborne was "lucky" to receive a £27 billion windfall which allowed him to perform his U-turn on tax credits.

And he said the Chancellor will "need his luck to hold out" if he is to meet his target of  a surplus by 2019/20 without raising taxes or imposing further spending reductions.

While Wednesday's Autumn Statement and Spending Review has resulted in cuts "less severe" than envisaged in July's post-election Budget, Mr Johnson cautioned that "this is not the  end of austerity".

The Spending Review settlement is "one of the  tightest in post-war history" and a swathe of government departments  will face real-terms cuts.

Even the NHS, which had its budget protected, will receive only a total increase of 3% over the next five years - close to the annual average over the past half-century - he said.

Mr Johnson said the Chancellor had effectively abandoned his cap on annual spending on welfare, which will be breached in each of the next three years.

And while the ditching of tax credit cuts means no family will take an "immediate cash hit", the long-term generosity of the welfare system "will be cut just as much as was ever  intended, as new claimants will receive significantly lower benefits than they would have done before the July changes," said Mr Johnson.

The planned consolidation of a number of benefits into a single Universal Credit "will now involve 2.6 million working families being an average of £1,600 a year worse off than they would have been under the current system, while 1.9 million will be £1,400 a year better-off", he said.