The coalition's spending cuts will contribute towards a 40 per cent rise in the number of adults living in poverty by 2020 and the biggest drop in incomes for 35 years, the Institute for Fiscal Studies (IFS) has warned.
In a report commissioned for the Joseph Rowntree Foundation (JRF), the IFS said that unless drastic action is taken the number of people living below of the poverty line will rise to 4.9 million over the next eight years.
The IFS report also forecasts a fall in living standards due to high inflation and weak earnings growth that is unprecedented in recent history.
It expects real media household income to be seven per cent lower in 2012/13 than in 2009/10 and to remain below its 2009/10 level until at least 2015/16.
Julia Unwin, chief executive of the JRF, said that people and places in poverty are "bearing the brunt" of government's austerity measures.
“This really is bleak news for people who are already struggling. The forecast is for a huge increase in the number of people living below the relative poverty line by 2020. The number of working-age childless adults in poverty is set to rise by over 40 per cent from its current level of 3.4 million to 4.9 million by 2020," she said.
“Overall, this report provides worrying evidence that people and places in poverty are bearing the brunt of government spending cuts. Government cannot ignore this evidence – it must look at how policy can help prevent the forecast increase in poverty levels.
“JRF is committed to monitoring the impact of austerity on people and places in poverty, to help ensure that they do not pay a disproportionate price for the deficit.”
The IFS also warns that the government will not reach its target of reducing child poverty to 10 per cent by 2020.
The report forecasts levels of 24 per cent by 2020 on the basis of current policies and anticipated future economic conditions.
"Unless there is radical change both in the economy and in the direction of policy on poverty, governments will continue to fall short of their own targets," it said.
Labour has seized on the report as evidence that George Osborne's economic plan is not working. Shadow work and pensions secretary, Liam Byrne, said the coalition was undoing the good work of the previous government.
"David Cameron promised us he would not increase child poverty. Now we have the truth. The Tory-led Government's decision to cut too far and too fast this year will condemn hundreds of thousands more children to grow up poor," he said.
"All the progress our country has made in a decade fighting the scar of child poverty has been wiped out by the decisions of just one year. A generation of children will not thank Cameron."
Nick Pearce, director of the think tank IPPR said the government should consider whether it was right to raise personal tax allowances given the prediction on child poverty.
“The IFS forecasts paint a very gloomy picture for family finances, with poverty set to increase significantly while at the same time the incomes of average families are being severely squeezed," it said.
"It is not realistic to reverse all the government’s cuts, but this report does raise questions over whether the government’s flagship policy of raising personal tax allowances is the right priority at this time.
"The government should not abandon the long term goal of eradicating child poverty, but given that money is so tight, it should prioritise ensuring that no child under school age spends their earliest years in poverty.
As well as focussing money on this age group, progress towards reducing child poverty should also include providing free childcare and nursery education – to give children a good start in life and help their parents to work.”