'Stealth cuts will slash income of poor families'

Thousands of low-paid working parents will see their family budgets shrink by hundreds of pounds or more in two years' time as a result of George Osborne's £18bn raid on welfare, according to new analysis.

The Chancellor opted to make a series of technical changes to tax credits and benefits as a way of avoiding cuts to higher profile universal benefits for pensioners such as winter fuel payments during the spending review. But evidence has emerged that his decision will hit poor working families with stealth-like cuts to their income.

Analysis carried out by the Resolution Foundation think tank found that a single mother on £20,645 with three children could be out of pocket by about £1,800 a year by 2012 as a result of cuts made by the coalition this year. Two young parents with children aged three and five with a household income of £25,656 will lose £760 a year by 2012.

The figures cast further doubt on the Prime Minister's promise that "fairness" would be at the heart of all decisions made about cuts. They will cause unease among Liberal Democrats, who had hoped to avoid hitting the budgets of poor families.

Tory grassroots will also be aggrieved, as the analysis suggests families are effectively losing out to young couples with no children. Changes made to Britain's personal tax system mean a couple aged 22 and 24 on an income of £18,289 will be better off in two year's time by £320 a year.

"The attention to date has been on the cuts to housing benefit and other changes affecting those on out-of-work benefits," said Gavin Kelly, chief executive of the Resolution Foundation. "What has gone totally unnoticed is major changes to tax credits that by 2012 will hit working families hard."