Osborne Cuts 'Will Make 2.6m Families Worse Off'

Around 2.6 million working families will be an average of £1,600 a year worse off because of Spending Review cuts, the Institute of Fiscal Studies says.

Despite George Osborne's big announcement that he has scrapped the tax credit cuts, working age benefit payments will be reduced to their lowest level as a share of national income for 30 years, the respected economic organisation has said.

The Chancellor's spending review was widely welcomed as an "end to austerity" and a u-turn on the tax credit cuts that would have let 3.3m families £1,100 a year worse off.

However, while IFS director Paul Johnson said that although the cuts were "less severe" than expected, it was "not the end of austerity" and was "one of the tightest" spending review's in post-war history.

Mr Osborne announced on Wednesday that he would "avoid" the controversial tax credit cuts, unpopular with both Labour and Conservative MPs, altogether.

Tax credits are due to be replaced by Universal Credit and Mr Osborne had already taken the axe to those benefits in his July Budget.

[READ: Osborne scraps plan to cut police budget, tax credits]

The IFS said it means that while those on tax credits will not take an "immediate cash hit", the Universal Credit changes "will now involve 2.6 million working families being an average of £1,600 worse off than they would have been under the current system, while 1.9 million will be £1,400 a year better off."

Mr Osborne's perceived Spending Review largesse was made possible by a £27bn windfall from a combination of better-than-forecast tax receipts and lower-than-expected debt interest rates.

Mr Johnson said: "He's got a bit lucky with some of the changes to tax receipt forecasts.

"The OBR has improved its forecast just a smidgeon on tax receipts going forward.

"If they reverse that - and at some point over the next four or five years there has got to be pretty high probability that will happen - I'd say a 50-50 chance things will get worse rather than better."

Speaking on Sky News Mr Osborne denied that he was gambling with the future of Britain's economy and said: "The fundamental thing I am trying to do is save money rather than ... spending the money or gambling the money.

"I am saying to the country let's put aside money for a rainy day. That's not what you normally do when you head off to the casino."