Cost of austerity shown in research as PM prepares to announce cutting corporation tax to lowest of top 20 economies

The combined impact of welfare cuts will leave struggling working families - the “just about managing” households Theresa May has vowed to help – worse off by more than £2,500 a year by 2020, according to research published days before her government’s first autumn statement.

A study of 187,000 households across the UK found that policies including cuts to universal credit and the four-year benefit rate freeze, coupled with rising rents and higher inflation, would see low-income working families typically lose £48.90 a week by the end of the decade.



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The findings have alarmed councils and charities worried that the growing financial burden on low-income families will raise poverty and homelessness levels.

The research will increase the pressure on the chancellor, Philip Hammond, to offer some relief to the “just about managing” families – or “Jams” – in Wednesday’s autumn statement. He warned on Sunday that the government is facing a “sharp challenge” in the face of the Brexit vote, but indicated that there would be some limited relief for those who are struggling.

The prime minister will also announce tax breaks and an annual £2bn investment fund for research and development to big businesses on Monday – an offer likely to be criticised for failing to address welfare cuts. She will further woo big business by slashing corporation tax to the lowest level out of the world’s top 20 economies, according to reports.

On becoming prime minister in July, she promised to help “ordinary working class families” in a bold attempt to distance her from her predecessor’s austerity approach. She has confirmed there will be no fresh cuts to social security budgets in this parliament.

But the study, by the consultancy Policy in Practice, suggests that even after promising no more cuts the cumulative impact of the £12bn of welfare changes either already in place or due to come into force will be far harsher than that experienced by low-income households under the first wave of austerity-driven welfare cuts during David Cameron’s leadership.

The study is based on the financial circumstances of 187,475 households in 17 district, council and metropolitan borough councils in England, Scotland and Wales under a mix of political control.



The analysis, which uses housing benefit and council tax data supplied by the local authorities, gauges the cumulative impact of various welfare reforms, including the benefit cap, housing benefit freezes, bedroom tax and universal credit changes.



Facebook Twitter Pinterest Philip Hammond and the shadow chancellor, John McDonnell, on the BBC’s Andrew Marr Show on Sunday. Photograph: Reuters

Official estimates of inflation and projected increases in private rent levels are factored in, as well as gains through the government’s “national living wage” and personal tax allowances.

When the impact of welfare cuts on out-of-work households is included, the average weekly loss drops to £41.45, or £2,155 a year – though that masks the extreme effect of reforms on some families, such as those hit by the lower benefit cap, who will lose hundreds of pounds a week. By contrast, the equivalent weekly household loss for both in-work and out-of-work families between 2013 and 2016 was £13.72.

Asked if he would reverse the universal credit cuts, Hammond told BBC1’s Andrew Marr Show that forecasts were “pointing to a slowing of economic growth next year and a sharp challenge for the public finances”.

“There are a range of reasons for that and we’ve got to make sure that what we do is responsible, that everything we do is compatible with building resilience in our economy as we go into a period where there will be some uncertainty around the negotiation over our exit from the EU and focus on making sure that our economy is match-fit,” he said.

The former work and pensions secretary Iain Duncan Smith resigned from the cabinet in March over the cuts to universal credit, complaining of then chancellor George Osborne’s “salami slicing” of the welfare budget.

A Department for Work and Pensions spokesman said: “Our welfare reforms are incentivising work and restoring fairness to the system, because we know that work is the best route out of poverty.

“Our employment rate is at a record high, wages are rising and unemployment is at an 11-year low. We continue to spend around £90bn a year supporting families, people with disabilities, people on low incomes and jobseekers. And by the end of this parliament we will have given local authorities £1bn in discretionary housing payments for their residents who may need extra help.”

Hammond has already disclosed that he will announce £1.3bn of improvements to Britain’s roads, which will include £1.1bn to reduce congestion and upgrade local roads and transport networks and £220m to tackle “pinch points” on England’s motorways and major A-roads.

Treasury sources have confirmed that he could also crack down on staff perks such as gym memberships and mobile phone contracts, which are offered to workers willing to forgo part of their salaries in return.

Facebook Twitter Pinterest Theresa May promised to help ordinary working families in her first speech as prime minister. Photograph: Jack Taylor/PA

The shadow chancellor, John McDonnell, said Hammond should reverse the welfare cuts alongside reductions in disability benefits that will leave some claimants £30 a week worse off.

He also revealed Labour would support an increase in the 40p tax threshold from £43,000 next year to £50,000, a move promised in 2014 by Cameron to take millions of middle-income earners off the higher tax rate.

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“It looks as though the threshold will be increased on Wednesday by the government and we would support that,” he said. “It’s to people who need a tax giveaway at the moment, because the mismanagement of the economy by the Conservatives is hitting them hard.

“What we need is a long-term strategy. This autumn statement, we’re going back to giveaways and gimmicks again,” he added.

Campaigners and MPs – including some Tory backbenchers – have been lobbying ministers to mitigate the impact of the welfare cuts by restoring the work allowance in universal credit, and to reconsider the planned £30-a-week cuts in employment and support allowance benefits due in 2017.

Alison Garnham, chief executive of Child Poverty Action Group, said: “The huge cuts hitting, or about to hit, families under previously announced policies will be devastating to these families, communities and local authorities, as child poverty rises and huge amounts of money gets sucked out of local shops and businesses. Until the government acts, councils are resigned to being in the ‘damage limitation’ business.

“The big choice facing the government now is does it live up to the prime minister’s words – for example, by reversing the cuts targeting working families under universal credit – or does it give austerity a rebrand by making soothing noises but largely pressing ahead with policies that will tip the just about managing into hardship and more children into poverty.”



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The term “Jams” is used to refer to a loose group of about 6 million low-income working families, defined by the Resolution Foundation thinktank as having a net income of between £12,000 and £34,000 a year, although in practice many in this group switch regularly between employment and unemployment in an insecure job market. Their incomes have remained largely flat for a decade.

In her first speech to the CBI’s annual conference, the prime minister will announce increases in government investment in research and development worth £2bn a year by 2020 and an “industrial strategy challenge fund” to back priority technologies.

She will also announce a review of current research and development tax incentives to ensure the global competitiveness of the UK as a home for scientists, innovators and tech investors.