Miliband to PM: You will never be able to say again - 'We are all in this together'

The Camerons spent £6,312 on their kitchen table, the Smiths £50. Jane Merrick, Chris Stevenson and Matt Chorley meet the 'squeezed middle'

It is a breakfast scene familiar in households all over Britain. And the Smiths, tucking into their morning meal of Cornflakes and coffee, are a family like millions of others whose household income faces the greatest squeeze in several generations.

At face value, James Smith, his wife, Mary Adams-Smith, and their two children are just like the Prime Minister and his family – who were pictured for the first time having breakfast in Downing Street last month. Like the Camerons, the Smiths have young children. Mr Smith works in the public sector – as, technically, does the Prime Minister – and both are worried about the bleak economic climate.

But that, perhaps, is where the similarities end. As became clear when George Osborne revealed his punishing Autumn Statement last week, families across Britain are facing an unprecedented drop in household income as a combination of cuts to benefits and a slump in earnings contribute to the sharpest drop in living standards for half a century.

The contrast between the occupants of Downing Street and our typical "squeezed middle" family underscores Labour leader Ed Miliband's accusation in the Commons last week that the Prime Minister could "never, ever be able to say again, 'We are all in this together'".

In the wake of the Chancellor's mini-budget, the Institute for Fiscal Studies estimated that the average family would lose £2,500 in annual household income next year, compared with three years ago. Last Tuesday, Mr Osborne announced a freeze in the working tax credit, a scaling-back of scheduled rises to the child tax credit and a cap on rises to public sector pay of 1 per cent for two years. The wealthy – including bankers, who are to enjoy another bumper season of an estimated £4.2bn of bonuses over the next few weeks – faced little hardship, despite Deputy Prime Minister Nick Clegg's pledge a week earlier that the mini-budget would ensure those with the "broadest shoulders" bore their share of the burden.

But new analysis published today by the Resolution Foundation, the think tank which highlights the plight of Britain's "squeezed middle", shows that a family such as the Smiths will lose nearly £4,000 in annual household income between last year – before the coalition's policies were implemented – and next year, when the cuts will begin to bite. The grim picture applies not only to millions of public-sector workers, many of whom went out on strike last week, but also to people with jobs in the private sector.

Mr Smith, who works as an information systems officer for Leicester City Council, earns £29,000 a year, while his wife earns £9,000 working three days as an accounts assistant for a large hotel chain. They live in a three-bedroomed council house in Leicester. They have two children: six-year-old Penny, who is similar in age to the Camerons' elder two children, Nancy, seven, and five-year-old Elwen; and Teddy, who, at two, is only a little older than 15-month-old Florence Cameron.

According to the Resolution Foundation, a family such as the Smiths will face a reduction in spending power between last year and next of a staggering £3,798 – which happens to be only slightly more than the cost of the Camerons' Sigma range cooker (£3,499). The pictures of the Cameron family, which were first published in The Sunday Times last month, show them tucking into Bitesize Shredded Wheat – an apparently ordinary breakfast, until we learn it is being eaten out of David Mellor "Montefeltro" pasta bowls that cost £28.50 a shot. For the Smiths, a sum like £28.50 would be spent on petrol for their Ford Sierra car.

The No 10 pictures show the Camerons seated at an Eero Saarinen marble-top table, which costs £6,312 from the Conran Shop. The Smiths' table was second-hand from a friend, costing £50.

Last month, it emerged that Mr Cameron spent nearly £140,000 buying land next to his Oxfordshire home from the Tory donor and lobbyist Lord Chadlington. The money is nearly four times the size of Mr and Mrs Smiths' combined earnings of £38,000.

For Mr and Mrs Cameron, whose combined wealth has never been revealed but is rumoured to be in the tens of millions, it could be argued that the couple should spend their money on material goods as a way of stimulating the economy.

Yet in the week that Britons were warned to tighten their belts for another four years, the sight of Mr Cameron and his family eating cereal with £10.95 David Mellor spoons may be difficult for many families to take.

Mr Smith said yesterday: "Our nursery costs are £35 a day, but I am behind with that, so I am paying two months in arrears and have to put away £100-£110 a month to pay for after-school and summer club for my daughter. To try to pay for that we have tried to shave down our budget recently, so I have stopped paying into their child trust funds and the only luxury we have is Sky, but we have the most basic package and that includes phone and internet as I work from home sometimes.

"I do worry about our finances and what is going to happen in the future, but there is a part of me that worries less, and we have not hit the worst for ourselves personally." Mr Smith added that the rising costs of food and energy were "horrendous".

Gavin Kelly, chief executive of the Resolution Foundation, said: "Families on low to middle incomes were already under intense financial pressure – with flatlining wages, rising costs of living and cuts to state support. For this group, the Autumn Statement has only made things worse, particularly from further cuts to tax credits.

"And given these families are already spending all the income they have, every pound taken out of their pockets is likely to be a pound taken straight out of the economy."

Mr Miliband this week will step up his attack on the Prime Minister with a 21-page dossier which will claim that Mr Cameron has "retoxified" his party by turning his back on women, the environment, aid and the NHS. Yet an ICM/Sunday Telegraph poll last night showed that Labour has suffered from last week's mini-budget: the Tories were on 38 per cent, surpassing Mr Miliband's party on 36 per cent. The Independent on Sunday understands that Vince Cable, the Business Secretary, is to warn the Chancellor that he needs to impose taxes on the super-rich to fulfil the 2010 coalition agreement of ensuring fairness.

The Lib Dem minister will step up his campaigns inside government for a mansion tax on properties worth £2m, and for greater transparency on executive pay.

A source close to Mr Cable said he wanted to see "more progress in terms of equality and sharing of burdens" when the Chancellor unveils his Budget next spring.

In an interview with the IoS, the Lib Dem president, Tim Farron, called for any increases in public-sector pay to be weighted towards lower-paid state workers.

"I don't see why those at the very top of the public sector can't consider doing considerably less well than a 1 per cent rise," he said.

And with the banking sector failing, in his view, to lend to small businesses, the £2.5bn bank levy should be increased.

The haves and the have-nots

David Cameron

Prime Minister

Salary: £142,500

Samantha Cameron

Part-time consultant to Smythson

Salary: £100,000+

Combined wealth: £3m+

The Daily Mail yesterday pictured the Cameron family having breakfast in Downing Street. Among the items listed were:

Silga Teknika stainless steel pasta cooker and lid: £225, David Mellor

Sigma range cooker: £3,499, Britannia

Fridge-freezer: about £2,000, Neff

Montefeltro bowl: £28.50, David Mellor

Lurpack Slightly Salted Spreadable: £2.98 Tesco

Eero Saarinen oval dining table with marble top: £6,312, The Conran Shop

James Smith

Local government worker

Salary: £29,000

Mary Adams-Smith

Accounts assistant

Salary: £9,000

Sanyo microwave: £50 from a friend

New World cooker: £500-£600

Lec fridge: £150

Plates: £1, Woolworths; Plastic bowls for the kids, £3 for five

Dairy Crest Willow Butter, £1, Sainsbury's

Table and four chairs: second-hand from a friend for £50

A typical family like the Smiths will face these cuts between 2010/11 and 2012/13...

Post-tax income: 2010/11 £30,758; 2012/13 -£756

Working tax credit: 2010/11 £4,374; 2012/13 -£2,746

Child tax credit: 2010/11 £5,690; 2012/13 -£169

Child benefit: 2010/11 £1,752; 2012/13 -£127

Total loss = £3,798

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