The single payment, which combines six benefits including housing benefit into one monthly payment, was intended to be more generous than the current system but the IFS said cuts to the programme meant this would not be the case.

The IFS has argued that more claimants will be worse off than better off in the longer term. It said that 2.1 million families will get less in benefits as a result, losing an average of £1,600 a year, while 1.1m homes with no-one in paid work will lose around £2,300 a year. Working single parents are set to lose out on £1,000, it added.

Conversely, the report suggested that 1.8m families will come out £1,500 better off on average and that 500,000 are expected to gain of £1,000 a year.

The IFS said it mostly agreed with the UK government’s assessment that UC would encourage more people to work.

Robert Joyce, an associate director at the IFS and an author of the report, said: “The long run effect of Universal Credit will be to reduce benefits for working families on average - a reversal of the original intention.

“However, the potential gains from simplifying the working-age benefit system remain mostly intact: universal credit should make the system easier to understand, ease transitions into and out of work, and largely get rid of the most extreme disincentives to work or to earn more created by the current system.”

The Equality Trust said Universal Credit “leaves the poorest running up the down escalator, struggling to keep pace with others”.

“We can’t keep pretending that our taxes and benefits system is fair when the rich are given all the ladders and the poor all the snakes,” Duncan Exley, director of the charity, said.

Shadow work and pensions secretary Owen Smith said the IFS report leaves Iain Duncan Smith’s claims for Universal Credit “in tatters”.

He added: “Everyone can now see that successive cuts to universal credit have destroyed many of the work incentives that were supposed to be the very reason for the scheme, hitting single parents particularly hard.”

A Department for Work and Pensions (DWP) spokesman said: “Universal Credit is transforming lives across the country, with claimants moving into work significantly faster and earning more than under the old system. UC is on schedule and will be in all jobcentres by Spring.

“Once fully rolled out it will generate £6.7bn in economic benefit every year.

“We welcome the IFS analysis which shows that UC will make work pay and increase financial incentives for people to work more, while also bringing the welfare bill under control. Universal Credit also includes a wide range of additional benefits - including increased childcare and more support from a dedicated work coach - both things that were ignored in the IFS’s analysis.”