The welfare and tax changes 2011 that come into effect today will cost British houeholds £2.3bn this year, according to estimates by Capital Economics.
Even though lower-earning taxpayers will be better off in the 2011/12 tax year, today is being dubbed 'Worse-off Wednesday' for the higher earners who will see their earnings reduced by £500m when inflation is rising.
Income Tax Changes 2011
It's been estimated that around 1.7m people earning below £21,000 a year will be £250 better off.
However, there's not many benefits for higher earners, as the threshold at which they start paying the Higher Tax Rate is reduced from £37,400 to £35,000 above the personal allowance.
(NI) National Insurance contributions are also going up by 1%, although there will be an increase in the number of exempted low earners; because of a rise in the threshold.
Capital Economics UK economist told Sky News:"I think it's pretty unambiguously bad for economic growth because these people (higher earners) spend a lot of their income.
"Therefore consumer demand is going to weaken and economic growth is going to weaken because consumer demand makes up two-thirds of the economy."
Linking increases in benefits to CPI inflation rather than RPI inflation - which includes housing costs - will also reduce social welfare payments by £1.8bn.
The cuts announced in the Budget, which you can learn more about here, are forecast to reduce household incomes by 0.25%, but the impact is compounded by above-target inflation, which last year caused the first decline in spending power since 1981.
The Bank of England has forecast that inflation will peak at 5% in 2011, also contributing to a reduction in the spending power of households across Britain.
Between 2008 and 2011, The Institute of Fiscal Studies expects that real household income will have fallen by 1.6%.
Low income families have also been warned to prepare for a shock as a three-year freeze and other changes to Working Tax Credits come into effect.
The TUC has calculated that a couple earning £40,000 who pay £400 a week in childcare for two children will be £2,500 worse off over the next year.
And more cuts already planned for April 2012 will make matters worse.