Family incomes will fall by 0.6 per cent in real terms in the coming financial year – slower than the 2.8 per cent fall this year and the 3.7 per cent last financial year, according to the Institute for Fiscal Studies (IFS).
The report is based on planned cuts, which may change if George Osborne (pictured) tweaks spending in the budget.
Planned reforms will hit incomes by a total of £4.1bn, or an average of £160 per household, in 2012-13 before rising to £9.8bn, or £370 per household, the following year.
This can be added to indirect tax rises, such as January 2011’s VAT rise, which totals another £12.8bn or £480 per household per year, and an overall takeaway from families of £3.9bn in 2011-12.
“The major demographic group who will lose the most from this set of reforms is households with children,” said the report’s author Robert Joyce, stressing that those on lower incomes will be hit hardest.
“This is a damning analysis of the choices this out of touch government has made as they raise taxes and cut spending too far and too fast,” said Labour’s Rachel Reeves.
“How can we be all in this together when the banks have got a tax cut this year, while people on low and middle incomes are being hit hard and families with children hardest of all?”
A Treasury spokesman said the government is raising the threshold at which workers begin paying income tax helping the lowest paid.