An additional 600,000 children will be left in poverty as average incomes in Britain fall by seven per cent between 2009-10 and 2012-13 and the government changes the welfare system, a report said yesterday.

The Institute for Fiscal Studies, a respected think tank, said the fall was the largest for 35 years.

It said the “unprecedented collapse in living standards” can be attributed to high inflation and weak earnings growth in the aftermath of a deep recession.

But it also says that reforms proposed by Prime Minister David Cameron’s government would raise absolute child poverty – where the household income is below 60 per cent of the 2010-11 median income, adjusted for inflation – by 200,000 in 2015-16 and 300,000 in 2020-21.

Ministers want to replace all means-tested welfare benefits for those of a working age by a single benefit known as the universal credit. The IFS report says that in isolation this change would cut child poverty, but this would be more than offset by other reforms, including indexing benefits to a measure of inflation that excludes housing costs.

It forecasts that 3.1 million children, or just over 23 per cent, of children in Britain will be in absolute poverty by 2013, up from 2.5 million (19.3 per cent) in 2010, and 3.1 million will still be in absolute poverty in 2020.

This would mean the government would miss by a wide margin its target, agreed in law last year with the support of all the political parties, to slash absolute child poverty to under five per cent by the end of the decade.

However, a spokesman for the Department for Work and Pensions challenged the report, saying it did not fully take into account all the work the government was doing to tackle child poverty, including in education.

“Our wide-ranging reforms will have a dynamic impact on some of the poorest families, encouraging people into work, many for the first time and improving the life chances of children at an early age,” she said.