Budget: UK's mid-income families hit by welfare changes

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The major shake-up will see all benefits and tax credits increased in line with consumer prices inflation, rather than retail prices inflation, from next year, saving around 6bn a year by the end of the next Parliament.

Mr Osborne said tax credits would be reduced for middle income families and child benefit be frozen for three years.

Other casualties include the health in pregnancy grant which gave pregnant woman a payment of 190 and which will be abolished from April next year. A maternity grant which is a one-off payment for low earners to help towards costs of a new baby will also be restricted to the first child.

Lone parents will also be expected to look for work when their youngest child starts school.

The Chancellor did announce one positive offering – 2bn to help the poorest families in society who will receive an extra 150 child tax credit above inflation – but charity groups have warned this bonus will be negated by the other tough measures.

A Save the Children spokeswoman said: "The 2bn extra cash to help the poorest families via child tax credit was the rabbit that Osborne pulled out of the hat. It's a welcome move and we're glad it's targeted at those who need it most.

"But we fear this benefit will be wiped out by Osborne's other tough measures."

Tax credits will be reduced to families earning over 40,000 next year, the taper rate at which awards are reduced will be increased, and the baby element will be removed for new children from April 2011.

The amount they earn before their tax credits start to diminish will be cut from 25,000 to 10,000, and then 5,000, while people will only be able to claim back-dated credits for one month, not three.

Mr Osborne said total welfare spending had soared from 132bn 10 years ago to 192bn now, an increase of 45 per cent.

He hopes the planned shake-up will save the country 11bn by 2014/15.

Tax credits currently cost the UK 30bn a year, with 150,000 families with incomes of more than 50,000 a year receiving money through them.

The reforms to tax credits are expected to save the Government 1.18bn next year, rising to 3.22bn 2014/15, with the decision to freeze child benefit saving a further 975m by the end of this Parliament.

Mr Osborne said: "Tackling spiralling welfare costs means also addressing the bill for tax credits. Spending on tax credits has increased from 18bn in 2003 to 30bn this year. This is unsustainable.

"We need to target tax credits on those who need the help most."