IN 1931, when the Labour Government of Ramsay MacDonald cut unemployment benefit in an economic depression, the Labour Party split and was almost destroyed as a political force for the next decade.

But the cuts in welfare made in George Osborne's Autumn Statement have not only failed to cause a split in the Liberal-Tory coalition, they've won the support of the Labour opposition. In his bumbling Commons response yesterday, the one thing that the Shadow Chancellor, Ed Balls, had no difficulty saying clearly was that "Labour supports the cap on benefits".

Except, of course that it isn't a cap, but a cut in real terms, since benefits like Job Seekers Allowance will rise at only 1% per year while inflation has been running at 2.5-5%. This represents a significant slice of a very meagre income. The current maximum rate for Job Seekers Allowance is £71 per week. I had to double-check that figure because at first I didn't believe anyone could possibly be live on it. Of course, those receiving JSA will also be entitled to housing benefit and council tax relief, but that still leaves them with very little for the bare necessities of food, clothing, heat. Living on that kind of level for any length of time would not just be soul-destroying, for many of us it would be life-destroying.

The Chancellor justified the cut, which will take nearly £4bn out of the pockets of welfare claimants over three years, on the grounds that he was taking an equivalent amount from the rich by capping tax-free pension pots, ending Swiss tax havens and altering changes to tax thresholds. But this is hardly comparing like with like. Losing tax relief on the top quarter-million of a £1.5 million pension fund is hardly going to hit as hard as losing £5 out of a £71 allowance, and that is what the poor sod on JSA is looking at over the next three years. And since there is all-party support for this squeeze, there isn't much hope of a reversal.

One of the remarkable achievements of this Coalition has been to fundamentally change the terms of the debate over welfare during this recession. There seems to very little public sympathy now for those on benefits. I hesitated before writing this column about welfare because I'm aware that, for many people, the issue is simply a turn-off: heard it all before, country's run out of money, we've all had to tighten our belts. Labour focuses relentlessly on "hard-working" middle-income families – who, it is claimed, lost £1000 a year through yesterday's jiggling with tax thresholds and entitlements. The Liberal Democrats used to be the party of conscience, but they are now signed up to the austerity programme and seem to have lost their voice.

The move by George Osborne to cap benefits at £25,000 last year was a brilliant piece of black propaganda. Certainly, it was absurd that some large families, living in expensive inner London boroughs, could be receiving housing and other benefits that amounted to more than the average wage. But it was only ever a tiny handful of individuals who were in that category and none at all in Scotland. But it created the impression that benefits were out of control and encouraging idleness. And yesterday the Chancellor recycled the image of the hard-working people getting up early to pay for "the neighbour still asleep, living a life on benefits".

Normally, in times of recession, there is widespread sympathy for the workless for the obvious reason that there is no work around. That was certainly the case in the 1990-93 recession when some 58% of us thought that more should be spent on welfare against 28% today, according to research by the National Centre for Social Research. More of us, too, believe that welfare is a disincentive to finding a job. Yet, the big growth area in benefits in the last decade has been among the working poor. Wages have fallen so far in the last decade that some 4.4 million jobs in Britain pay less than £7 an hour. According to the Joseph Rowntree Foundation, six million people live in households which are receiving benefits even though at least one family member is working, and they will all be hit by the benefits squeeze.

Welcome to modern Britain. There was a pretty stark message buried in this Autumn Statement: Britain is becoming a very much harsher place as the country slides inexorably into a prolonged economic depression. The Chancellor has now extended the period of "fiscal consolidation" until 2018 – that's eight years of austerity, low growth, and increased public and private debt. And who is to say it will end there? It is now clear that the scale of the 2008-10 crash was far greater than previously thought – 6% of the economy disappeared into the black hole caused by the banks. That may not sound much, but it is by far the largest economic contraction since the war. And unusually, the ground is not being made up in the recovery phase. Normally, after recessions, the economy bounces back because investment recovers as it becomes cheaper to borrow money, to buy machinery, to build houses. There is a natural rhythm to what is called the "business cycle".

But this time it has got stuck. And there is very little reason to see any significant recovery soon. The British economy was supposed to be growing at nearly 3% this year, according to the 2010 forecast by the Office of Budgetary Responsibility, but we're slipping back into recession. The Government blames the eurozone crisis and world market conditions, but the truth is that most G20 countries are growing a lot faster than Britain.

Yesterday's jiggery-pokery with the deficit numbers can't disguise the fact that government borrowing has not fallen in the way it was forecast and that the cycle of austerity is becoming a vicious one. The more you cut, the more you have to cut. That's the debt spiral that killed the Mediterranean countries, and it looks like we could be going the same way. Which means that for millions of families dependent on welfare, it is going to be a very hard road indeed.