Four million people, including a million single parents in work, will lose out when the Government streamlines the benefits system next year, according to new research.
Gingerbread, which campaigns for lone-parent families, warned that the Coalition would "give with one hand and take with the other" when the Universal Credit is introduced from October 2013.
Gingerbread describes the setback as an 'unintended consequence' of the Government's flagship policy of raising the amount of money people can earn before they start paying tax, which will rise to £9,205 next year.
For every £1 of extra income, benefits will be reduced by 65p. So a £1,000 increase in the personal tax allowance will give £200 per year to every basic-rate taxpayer - except those on universal credit, who will gain only £70.
The campaign group said the Universal Credit could result in the lowest-earning families foregoing the equivalent of two-thirds of the intended increase to their untaxed earnings come 2013.
The group's chief executive Fiona Weir said:
Unless remedial action is taken, those who lose out will be hard working people whose wages still don't bring in enough to pay for their family's day-to-day essentials, including the majority of working single parents.
"We find it hard to believe that the Government would design two schemes to support people into work and lift their families out of poverty and yet have one effectively cancel out two-thirds of the other.
"But as things stand, the Treasury will be giving with one hand and taking with the other."
Gingerbread has called for a review of the plans to enable low income families to keep more of the benefits of a higher tax threshold, and to also ensure that all workers equally benefit from any rise to the personal tax allowance.
A Department for Work and Pensions spokesman told The Independent: "The fact is that Universal Credit will increase benefit payouts by £2bn, help to lift 900,000 adults and children out of poverty, and 2.8 million households will have higher entitlements as a direct result of the new benefit.
"Most importantly Universal Credit will make work pay and end a system that penalises people who do the right thing to boost their income by going out to work."
What do you think? Are you concerned about the introduction of the Universal Credit? How will you be affected?