Rising inflation to hit low-income families, think tank warns

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The falling pound and rising inflation in the wake of the Brexit referendum result will hit millions of low-income families, a leading financial think tank has warned.

The Institute for Fiscal Studies (IFS) said 11.5 million families were already set to lose out as a result of former chancellor George Osborne's decision in last year's summer Budget to freeze most working-age benefits and tax credits until 2020.

The move not to uprate benefits in line with inflation had been estimated to represent a 4% cut - leaving affected households an average of £260-a-year worse off than they would have been.

However, the IFS said that in light of the latest inflation forecasts from the International Monetary Fund (IMF), the freeze was now expected to result in a 6% cut, with families losing £360-a-year compared to what they would have received.

As a result, the expected saving to the Treasury which had been estimated at £3 billion a year in 2019-20, has risen to £4.2 billion.

"This policy represented a significant takeaway from a large number of working-age households. But it also represented a shifting of risk from the Government to benefit recipients," the IFS said in a briefing note.

"Previously, higher inflation was a risk to the public finances, increasing cash spending on benefits. Now the risk is borne by low-income households: unless policy changes, higher inflation will reduce their real incomes.

"While it is perfectly reasonable to argue - as the 2015 Conservative Party manifesto did - that the working-age benefit system should be made less generous over this parliament, it is hard to see why the appropriate size of cut should be arbitrarily determined by the impact of movements in sterling on prices."