Welfare reforms and inflation 'will leave millions £50 a week worse off by 2020'

This will constitute a 'significant loss in income'

Updated: 

More than two million British families will be £50 a week worse off by the end of the decade due to welfare reforms, inflation and rising rents, a report warns.

The stark analysis commissioned by the Local Government Association (LGA) found that of the 2.14 million working-age households set to lose more than £50 a week by 2020, the majority (1.34 million) are in work.

The majority of those households receive working tax credits and will face a "significant loss in income" when they transition to the Government's flagship universal credit (UC) welfare system, aimed at streamlining benefits, the Policy in Practice study said.

Ministers have designed UC in order to "make work pay" but the analysis warned: "This reduction in support raises the risk of working poverty, and reduces the incentive for low income households to enter or stay in work, as work will not 'pay' as well as under the current tax credits system."

The report comes with the Tories under pressure to ease austerity after a disastrous general election in which the party lost its House of Commons majority, with anti-austerity Labour making gains.

In all, UC is set to lead to an average income loss of £11.18 per week, the analysis of a representative cohort of 9.1 million low-income British households showed.

While ministers often cite the higher minimum wage and increases to the personal tax allowance as measures to help poorer families, the cumulative loss from welfare reform will be an average of £40.62 per week by 2020, according to the report.

"This is a consequence of expected inflation and private rent growth, combined with the freezing of benefits rates for working-age people through to 2020," the report said.

"This means many households see falls in real income. This is especially pronounced for private renters, for whom the link between the Local Housing Allowance (LHA) rate and market prices has been broken."

The report adds: "It is important to note that welfare reforms affect households very differently, with a range of impacts depending on family type and size, housing tenure and characteristics, in particular disability or ill health."