Families' earnings '˜to be cut by £1,000 a year'

Millions of low and middle income families could face flat or falling living standards over the course of the current parliament, according to The Resolution Foundation’s Under New Management report.

The warnings come as a tougher new benefit cap comes into force today. The annual limit on welfare payments to unemployed households drops from £26,000 to £20,000 everywhere outside Greater London.

The report published today by the Resolution Foundation reveals living standards for low and middle income working families will be worsened further still by the £12bn social security cuts scheduled for this Parliament.

It claims gains from the National Living Wage, income tax cuts and the offer of 30 hours free childcare do not come close to offsetting significant income losses from welfare cuts.

The report warns income growth for higher income households is positive, but at less than 0.5 per cent a year is still weak by historic standards.

It claims the future of Britain’s trading relationships and wider productivity growth will be the key to boosting living standards.

However, with the timescale to deliver Brexit the report warns the Chancellor has the opportunity to revisit key policies in the upcoming Autumn Statement.

David Finch, senior economic analyst at the Resolution Foundation, said: “The Prime Minister has rightly identified just managing families as a key priority for her new government.

“The first big test of this rhetoric comes in just a few weeks’ time when the Chancellor sets out the new government’s economic direction of travel in his Autumn Statement.”

The report identifies four key welfare reforms to be examined including cuts to work allowances in Universal Credit; a four year freeze in working age benefits; removing the family element in Universal Credit and a two-child policy.

The Foundation claims boosting work allowances in Universal Credit – at a cost of around £3bn – offers the most targeted way to support families by increasing their incomes and restoring their incentives to find work.

Mr Finch added: “The Chancellor inherits a tough legacy on living standards.

“The combination of long-term productivity failings, higher inflation, lower than expected wage growth and more immediate welfare cuts mean that millions of low and middle income households could face a parliament of flat or falling living standards.”

Around 23,500 households who previously had their benefits capped have moved into work since 2013, according to the Department for Work and Pensions.

But analysis by the Institute for Fiscal Studies suggests that “the majority of those affected will not respond” to the tougher cap by moving into work or moving house.