Benefits freeze and rising prices to hit Scottish household income by £360 a year

The think tank estimated in March that 11.5 million working families across the UK will lose an average of £260 a year because of the decision to freeze most social security payments in cash terms.

But factoring in latest inflation forecasts from the International Monetary Fund (IMF), the IFS said the same 11.5 million families are now expected to lose an average of £360 a year, £100 a year more than expected in March.

At the same time the freeze is predicted to save ministers around £4 billion a year, £1bn more than expected.

According to the IFS, the UK government policy to freeze most working-age benefit and tax credit rates in cash terms until March 2020, announced in the July 2015 Budget as part of its attempt to cut annual social security spending by £12bn, has passed the risk of an inflation hike onto millions of ordinary working families and will lead to lower living standards.

The IFS said: “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. 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.”

The IFS said the policy now represents a 6 per cent cut to affected benefits.

It added: “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.”