THE Chancellor yesterday said an unexpected £7bn cut to benefits meant he could reduce other departmental budgets less than Labour would have done.

However, North-East opposition MPs said the welfare cuts would hit vulnerable people the hardest.

The reforms, including a fresh crackdown on benefit fraud, are on top of previously announced welfare savings of £11bn.

The current “complex” system of means-tested working age benefits and tax credits will gradually be replaced by a universal credit that will increase work incentives and reduce fraud and error, the Chanceller said.

But he pledged that low-income families with children would be protected, partly through an increase in the child element of the child tax credit by a further £30 in 2011-12 and £50 in 2012-13 above inflation. He scotched speculation it would be scrapped for all children over 16.

The welfare reforms include freezing the working tax credit for three years from next April, changing working tax credit eligibility and ending the payment of the mobility component of the disability living allowance.

Middlesbrough South and East Cleveland Labour MP Tom Blenkinsop said the measures would affect ordinary people.

He said: “We see a pensions and retirement announcement on raising state retirement age, which shows that women workers will see the erosion of their existing retirement age rise at a quicker rate than men – something that is clearly discriminatory and possibly illegal. I also expect that when we see detailed welfare figures later, we will see similar cases where vulnerable people will be hammered hard.”

Derek Long, of the National Housing Federation, said the review was bad for the region.

He said: “Squeezing benefits but at the same time hiking rents to pay for new homes means thousands of poorer new tenants could be caught in a new poverty trap.”