Families to suffer most debt after benefit cuts?

Families could be left in financial difficulties – including debt – once proposed benefit and tax changes come into effect, if a new report is anything to go by.

The Institute of Fiscal Studies (IFS) analysed the potential consequences of planned amendments to taxes and welfare payments in 2012-2013 and found that while median household incomes should see smaller drops during the 12-month period compared with the last two years, families could lose up to £370 a year due to the changes.

It said 2012-2013 will likely see households shoulder an extra £160 cost as a result of the proposals, with this rising to £370 per annum after this point.

Those with children and on low incomes will be most affected thanks to cuts in welfare including the continuing fallout of the indexation switch to the Consumer Prices Index for many tax credits and benefits over a year ago, as well as indirect tax rises that took place in January 2011.

"The IFS highlights what many of our parents already know. Families with children are in the firing line and are bearing the brunt of government austerity measures," said Rhian Beynon, head of policy and campaigns at Family Action.

Alison Garnham, chief executive of the Child Poverty Action Group, added that the changes could see 400,000 more children brought up in poverty by 2015.

"By hitting families and putting children into poverty the government is not cutting the deficit in a sustainable way and is instead creating a costly social and economic mess for future governments to clean up," she remarked.

While median incomes are expected to drop by 0.6 per cent in 2012-2013 before rising again from 2014, real growth is forecast to remain below the historical average rate, according to the IFS.

If it had increased at this rate instead, real median incomes would have risen by 22 per cent between 2002-2003 and 2015-2016, the report said.

By Joe White