The so-called "bedroom tax" drives people to hunger and fails in its purpose to free-up more homes, a government report has admitted.
The evaluation, which was slipped out by the Department for Work and Pensions (DWP) on the last day of Parliament before Christmas, showed three-quarters of people affected had to cut back on food.
The research comes after the Archbishop of Canterbury said the government's welfare policy was the primary factor driving people to foodbanks.
The removal of the spare-room subsidy, also known as the "bedroom tax", means that since 2013 households with spare rooms lose some of their welfare. Children of the same-sex under 16 are expected to share rooms and the government insists that if families in large council properties occupied smaller homes, it would free-up Britain's housing shortage.
However the policy is failing to make housing more available while forcing many affected to cut back on food and heating, yesterday's report by the Cambridge Centre for Housing and Planning Research and Ipsos MORI revealed.
The study found that 76 per cent were forced to cut back on food expenditure and nearly half had to spend less on heating and energy bills. Furthermore, 78 per cent of those affected regularly run out of money at the end of the week or month and landlords were very concerned some tenants were "in severe poverty and unable to pay the shortfall".
Many dipped into savings or accrued debt to cover their expenses but claimants "who had been using their savings for the first year had depleted these and so were having to make greater cutbacks in their household budgets", the report found.
Additionally only one in nine have escaped the cut by moving to a smaller property and a survey of landlords found that many wanted to move but "large numbers of people were unable to because of a shortage of smaller homes". Some claimants had not registered to move because they knew there was a shortage and 42 per cent of landlords now struggle to let larger properties.
Labour's shadow work and pensions secretary, Owen Smith, said it was inconceivable how Iain Duncan Smith could "continue to stand by this vile policy".
"This damning independent report, published by the DWP itself, shows how this brutal and unfair policy deliberately drives people deeper and deeper in to poverty. It's shameful – especially in the run-up to Christmas – that 80 per cent of people hit by the bedroom tax regularly run out of money by the end of the week or month.
"This report yet again shows it isn't just cruel but doesn't even achieve what it set out to. The case for scraping the bedroom tax is overwhelming. The Tories should learn the lessons from their tax credit U-turn and end this brutal policy."
Child Poverty Action Group also criticised the government and pointed to the difficulties families face when moving.
"Affected households were also twice as likely than others to resort to borrowing," chief executive Alison Garnham said.
She also criticised the timing of the report's publication.
"This is a long and deep look at a hugely controversial policy – it really should not have been released just as MPs rise for Christmas," she said.
However the government defended the policy saying it had "restored fairness to the system".
"It is wrong that under the previous system taxpayers had to subsidise benefit claimants to live in houses that are larger than they require," said a DWP spokesman.
"We know that there are cases where people may need extra support whilst they transition to our reform, that's why we have given councils £500m of funding to provide discretionary payments to those that need them, with a further £800m to be provided over the course of this parliament."