Ministers are facing fresh calls to suspend the rollout of their flagship welfare reform after experts warned that a potential flaw in the system could end up costing an extra £600m a year.

MPs, councils and charities have already sounded the alarm over universal credit after mounting evidence that new claimants were being plunged into debt and rent arrears, including some threatened with eviction. However, there are now concerns that the new system risks causing havoc with the allocation of free school meals, which are given to more than a million children from low-income families.

Under universal credit, which combines several old benefits into a single payment, the “trigger” for working out which families are entitled to a free school meal has been removed. However, the system’s design means there is no obvious way of putting a new trigger in place.

The Resolution Foundation thinktank is warning that ministers face having to either cut back free meals or give them to all children whose parents receive universal credit. The latter expansion would cover an additional 1.7 million children at a cost of up to £600m a year.

Currently, the children of parents who receive working tax credit are entitled to a free meal. There is no such threshold built into the universal credit system. The government could not explain how the issue would be fixed, saying only that details would be released “in due course”.

David Finch, senior economic analyst at the Resolution Foundation, said: “Implementing such an ambitious reform was always going to be hard, and there are bound to be teething problems. But inevitable implementation challenges are different to straightforward design flaws.

The free school meal design issue is one of many to address before millions of people are moved to the new system. David Finch, Resolution Foundation

“One big question that needs answering is the extent to which families on universal credit will receive free school meals. Depending on what the government decides, it could either mean a massive expansion of free meals, costing around £600m a year by the time [the new system] is fully rolled out, or a scaling back of the programme, with some working families losing their entitlement as a result.”

He said that the free school meals issue also risked damaging the main aim of the reform, to “make work pay”.

“The eligibility threshold for free school meals will reintroduce just the kind of cliff edge that discourages people from entering work or increasing how much work they do – the barriers that universal credit rightly seeks to remove,” he said.

“Universal credit rightly aims for a highly desirable simplification of our social security system, but the issue of free school meals is just one of many design issues which should be addressed before millions of people are moved to the new system.”

A government spokeswoman said: “More than 1.1 million children currently benefit from free school meals, saving hardworking parents money and, as universal credit is rolled out, we will ensure the families who need it most continue to receive this support. We will put forward detailed proposals in due course.”

It comes amid warnings that the introduction of universal credit, increased borrowing, and ongoing issues around insecure work, have seen greater pressures placed on mental health professionals as more people struggle with issues such as debt and benefits.

This week Citizens Advice will release new research revealing that the number of people with a mental health problem who seek its help has increased by 9% in the past year. Much of the increase has been attributed to the roll-out of universal credit.

Martin Lewis, founder and chair of the Money and Mental Health Policy Institute, said that psychiatrists and mental health nurses felt they had to tackle practical financial issues before they could focus on their patients’ mental health.

“Often people with nowhere else to turn in a crisis – such as when they’ve not received their benefits, or the bailiffs are on the phone – get in touch with their compassionate mental health professional, who feels duty bound to help,” Lewis said.