Money was already tight for single mother Nicola Marshall and looks set to get tighter in a new austerity drive in Britain that will affect millions of low-paid workers.

"There's going to be people out there who simply don't have money to spare," said the 37-year-old part-time office worker, who relies on tax credits to top up her £11,000 (15,000 euro, $17,000) a year salary.

Britain is slashing the credits, which currently help 4.5 million households, in a drive to reduce welfare dependency that has prompting warnings the cuts would hit the poor -- and could be counterproductive.

The measures form the core of £12 billion of welfare savings over the next five years as Prime Minister David Cameron's newly-elected Conservative government seeks to eliminate a budget deficit.

Reducing tax credits and restricting them to two children will cut £6 billion from a system that costs £30 billion a year, something finance minister George Osborne said was "simply not sustainable".

Unveiling his budget on Wednesday, Osborne told the House of Commons that tax credits were "subsidising lower wages".

To offset the change, he announced the introduction of a higher minimum wage for the over 25s and income tax cuts for the lowest earners, promising to "make work pay".

Analysts warned however that these measures would not mitigate the benefit cuts, prompting charities to warn the poorest could see their incomes slashed.

"In practical terms it means families forced to choose between paying the bills or missing meals," said Nick Bryer, head of UK policy and campaigns for Oxfam.

- Britain 'has lost compassion' -

The changes were hailed by Conservative lawmakers, and the mass-selling Daily Mail tabloid said it was a bold assault on Britain's "bloated" welfare system.
"It was nothing less than a blueprint for transforming Britain into a better, more prosperous country -- of self-reliant families, rescued from welfare dependency to enjoy the dignity and rewards of work," it said.

But others cautioned that the changes could hit exactly the working families the Conservatives claim to champion.

Three million families will lose about £1,000 a year under the tax credit cuts, which would reduce the incentive to work for people already receiving benefits, said Paul Johnson, director of the Institute for Fiscal Studies.

Monique Ebell, analyst at the National Institute of Economic and Social Research, said the measures were "inconsistent".

"While the changes in income tax thresholds should modestly strengthen the incentives to enter or stay in work, the government has worsened the work disincentives embedded in the tax credit system," she said.

Marshall and her 11-year-old daughter currently receive £5,000 in tax credits and housing support, but her total income is still well below the £26,000 national average.

"The only reason we're not really struggling is because my ex-husband pays maintenance," she told AFP by telephone from her home in Kent, in southeast England.

She has not yet calculated the impact of the changes on her budget, but notes that the system already acts as a disincentive to work more by offsetting any increase in salary with a higher tax bill and a cut in tax credits.

The promised new rise in the minimum wage will not affect Marshall, as she already earns more than the proposed amount.

"The reality of the situation is you're not going to be able to make everyone earn a decent wage immediately, but you're going to cut their money before they have the opportunity to earn any more," she said.

The government has insisted austerity is necessary to avoid the plight of crisis-hit Greece, but Marshall fears that poor people are being increasingly vilified.

"I really am trying my best and I just worry that this country has lost its compassion," she said.