Universal Credit claimants with families could get £1,000 less next year if the Government waters down usual increases to the benefit.
Normally Universal Credit and many other benefits go up every April in line with inflation.
The increase is typically the same as inflation for the year to the previous September.
September's inflation figures will be released on October 19.
But inflation was 9.9% in August, raising hopes that benefits claimants could get around 10% more for the 2023/24 year.
But worries are growing that the Government may abandon the usual system and reduce any increase to Universal Credit.
Last week, both Chancellor Kwasi Kwarteng and Chris Philp, Chief Secretary to the Treasury, refused to be drawn on whether benefits would be boosted to meet inflation.
The under-fire Chancellor said it would be "premature" for him to "come to a decision" on increasing benefits in line with inflation amid the economic turmoil.
"But we are absolutely focused on making sure that the most vulnerable in our society are protected through what could be a challenging time," he claimed.
Soaring bills and prices have put the poorest households under severe strain.
Philp told ITV ’s Peston: “I am not going to make policy commitments on live TV, it is going to be considered in the normal way.
“We will make a decision and it will be announced I am sure in the first instance to the House of Commons."
This year, benefits were increased by only 3.1%.
Analysis by the Resolution Foundation found that increasing benefits by the level of earnings growth rather than inflation would mean a single adult lost £391 next year in real terms.
A single parent with one child would lose £607, while a working family with two children could get £1,061 a year less.
Child Poverty Action Group, an anti-poverty charity, warned that children in the poorest families were “already going hungry as costs soar”.
Alison Garnham, the charity’s chief executive, said that unless benefits were raised to meet inflation, poor households would risk being “casualties of a collapsing economy”.
Mental health charity Mind also expressed concern over the possible government U-turn.
It said the uncertainty was “deeply worrying” and urged ministers to reconsider, or risk leaving the most vulnerable people with agonising decisions about whether to eat or heat their homes.
“Any move by UK government to inflict a brutal cut in practice to the incomes of people who receive benefits during the worst cost of living crisis in a generation would simply be cruel,” said Vicki Nash, Mind’s associate director of policy, campaigns and public affairs.
“It would plunge thousands of people, many of whom have mental health problems, into financial chaos,” she added.
