Around a quarter of a million working Scottish families will be £1,600 a year worse off because of George Osborne’s cuts, a respected economic think tank has suggested.

The Institute for Fiscal Studies (IFS) also warned that the Chancellor’s high-profile tax credits U-turn would make "no difference” in the long run.

Around 2.6 million households across the UK will be affected by other welfare cuts, the IFS said.

Many are the same people who would have been hit by the heavily criticised plans to reduce working tax credits, it warned.

Labour claimed that the Chancellor was using smoke and mirrors to try to hide deep cuts to the welfare system.

The SNP accused the Conservatives of pursuing austerity out of choice not necessity.

However, there was some good news for Scotland as ministers ‘locked in’ a flaw in the Barnett formula set to give Scottish ministers £600m a year more than expected.

On Wednesday Mr Osborne unveiled shallower than expected cuts to public services, including protections for the police budget in England in the wake of the Paris attacks.

Yesterday he played down suggestions from some that the age of austerity was over, although he did say that he saw a "light at the end of the tunnel" for Britain's economy.

Better than expected public finance forecasts gave Mr Osborne an extra £27bn to spend over the next few years.

But the IFS warned that the Chancellor was taking a “50/50” gamble on those predictions proving correct.

Were there to be a shortfall Mr Osborne would be forced to raise taxes or unveil more swingeing public spending cuts, the IFS suggested.

Its director Paul Johnson said that the spending review was "one of the tightest" in post-war history and while the decision to ditch the tax credit cuts means no family will take an immediate hit the “long term generosity” of the benefits system would be cut “just as much as ever intended”.

The IFS calculated that working age benefits will be cut to their lowest level as a share of national income for 30 years.

It also warned that there could be a “rush” to buy second homes, before a stamp duty increase due to come in April.

While there was an average cut of five per cent when spread across all departments, some unprotected sectors were hardest hit.

These included the Department for Transport which will see its day-to-day spending fall 70 per cent between 2010 and 2019.

Labour signalled it would campaign against welfare cuts, which will now be built into the government's flagship plans for a 'Universal Credit'.

Shadow chancellor John McDonnell said Mr Osborne had “”partially U-turned but not in a full or a fair way because on Universal Credits the cuts will still go ahead”.

The Resolution Foundation think tank, which campaigned against the tax credits cuts also warned that working households would lose out under changes to Universal Credit.

Mr Johnson also reiterated the IFS's call that there was an “increasingly urgent need” to work out the fiscal framework for greater powers for Holyrood, saying “we still don’t know how devolution to Scotland is actually going to work”.

A Treasury spokesperson said: “As the IFS said today, no existing claimants will see a cash fall in their entitlements.

“Universal Credit is designed to ensure that work always pays. It is an entirely different system to the current one, taking in six different tax credits and benefits – with none of the cliff edges of tax credits.

“So comparing what someone making a new claim would receive under the new system in 2020 to what they would be eligible for now is not legitimate."