Chancellor of the exchequer George Osborne announced yesterday that most working age benefits, such as Jobseekers Allowance and Child Benefit, would go up by 1%, less than inflation, for the next three years.
The chancellor said: "The road is hard, but we are making progress. Turning back now would be a disaster."
In a bid to balance the pain for low earners, Osborne raised the tax-free personal allowance by a further £235 to £9,440 in 2013/14 and, to hit the wealthy, cut annual pension savings tax relief allowance from £50,000 to £40,000.
Labour shadow chancellor, Ed Balls, accused Osborne of "breaking his own rules, on which his credibility depended".
Balls said: "The average family on £20,000 a year would be worse off' – even with the personal allowance changes.
"After two and a half years we can see, and people can feel in the country, the true scale of this Government's economic failure." Balls added.
Rachel Reeves MP, Labour's shadow chief secretary to the treasury, said: "While millionaires get a tax cut, it is millions of struggling families on middle and modest incomes who are paying the price for this Government's economic failure.
"Independent figures show that around 60% of households hit by the real-terms cuts to benefits and tax credits are working households.
"According to the House of Commons Library, these decisions, together with all other changes to tax and benefits taking effect in April, mean a one-earner family on £20,000 with two children would lose £279 a year. This does not even include the VAT rise, which has cost families with children around £450 per year. And this will happen on the same day that 8,000 millionaires get an average tax cut of over £107,000."
Reeves added: "How can this Government claim we are 'all in this together' when working families, striving to do their best, are being singled out?"
Sarah Jackson, chief executive of family support organisation, Working Families, said: "The chancellor's statement today does not give low-income working parents confidence that he is on their side. New legislation will have to be introduced because he wants to break the connection between inflation and benefits.
"With inflation at 2.7%, his proposed 1% increase in benefits will hit many working parents in receipt of tax credits and child benefit hard, when they are already struggling with pay freezes and rising costs, including childcare."
Jackson continued: "It is disappointing that once again there is a failure to invest in childcare. Reducing the costs of childcare would make the biggest single difference to working parents. Childcare should be seen as part of the UK's infrastructure and worthy of a share of the £5 billion infrastructure spending announced today."
Iain McMath, managing director of solutions firm, Sodexo Motivation Solutions, said: "It is disappointing that the only reference made in George Osborne's speech with regard to recent reductions in child benefit was his intention to raise child benefit by 1% over the next two years. As positive as the word 'raise' initially sounds, once annual inflation of 2.7% is taken into account, the result is a whopping reduction of £3.7bn in child benefit spending."
McMath added: "The recent media spotlight on the lack of affordable childcare has seemingly done little to encourage the Government to help working families with the everyday struggles caused by rising childcare costs and reduced child benefits."
