INFLATION is set to cause a £300 a year squeeze on household finances causing inequality on a scale not seen since the days of Margaret Thatcher, a think tank warned yesterday.

Ahead of the latest Office for National Statistics figures on the rate of inflation, the Resolution Foundation has predicted that households could see “the deepest freeze yet” on benefits.

For decades, working-age benefits have gone up every April in line with the rate of inflation, but the current spike in inflation is causing a pay squeeze, with a freeze on benefits a second hit for many, the foundation says.

Following the 2015 general election, former chancellor George Osborne introduced a series of cuts to welfare benefits, including a four-year freeze, cuts to universal credit work allowances and limiting support to the first two children in a family.

The move was designed to cut £13 billion by the end of the decade. In that time, it is estimated that the benefits freeze will have taken away £4.7bn a year — a full £1bn more than previously forecast.

If the consumer price index — driven by rising costs of imports on fuel, clothes and food following the lower value of the pound after Brexit — stands at 2.9 per cent tomorrow, as is expected, some 7.3 million children and half of all families will feel the pinch.

More than half a million people looking for work and 2.4m disabled people will also be affected.

The greatest losses will be felt by working families: a working couple with two children more than £300 a year worse off next year, while a single unemployed person is set to lose £115.

The Resolution Foundation is urging Chancellor Philip Hammond to revisit the benefit freeze in next month’s Budget.

The foundation’s senior economic analyst David Finch said: “Doing nothing on benefits isn’t an option. Any failure to act risks ushering in a period of rising inequality on a scale not seen since Margaret Thatcher’s final term.

“For both economic and political reasons the Chancellor must surely look again at the benefit freeze and decide to let it go.”

The foundation warned it would be the first time that widening income gaps coincided with actual year-on-year falls in income at the lowest end.