The former work and pensions secretary Iain Duncan Smith has warned the chancellor that he risks undermining the whole purpose of welfare reform if he fails to reverse cuts to universal credit (UC) in his spring statement.

Philip Hammond is under mounting pressure from across the party to use better than expected tax revenues to reverse cuts made after the 2015 election. Research by the Joseph Rowntree Foundation shows that 340,000 people could be taken out of poverty by reversing the cuts to work allowances.

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‘I think he’s under a lot of pressure. There are a lot of colleagues around who would like to see the money restored to UC as a step in the right direction,” said Duncan Smith. “Hammond has got more money to spend. But will he? He says no … The answer to that is, we’ll see.”

UC, which rolls six major working-age benefits – including job seeker’s allowance, tax credit and housing benefit – into one monthly payment, has been beset with problems. It is years behind schedule and there have been four different secretaries of state since Duncan Smith resigned in 2016, protesting about cuts to disability benefits – saying they were a “compromise too far” that made the cuts look political rather than economic.

But all new claimants are intended to be on the system by the end of this year and, by 2022, all claimants on the existing in-work benefits are planned to have been moved on to UC. The government insists that no one will lose out in the move, but transition terms have yet to be agreed.

The rationale behind for UC is that it will ensure that work always pays more than being on benefits. However, MPs on the work and pensions select committee said last month that the business case had still not been made.

The latest crisis to hit the system is the plan to use the UC as a passport for benefits such as free school meals. That would mean some claimants losing £11 a week, which would take at least £30 of earnings to recover because of the way the tapering system works. Labour is forcing a vote on the change after the spring statement debate.

Cuts to the work allowance element of the benefit – the equivalent of the old tax credits – will hit low-paid families hard. The Resolution Foundation thinktank said the Treasury’s cuts were preventing the system functioning effectively. It has called for “far-reaching and fast-moving reform” as well as more investment

Duncan Smith said: “Rolling out a new system, and pulling the money out of it the whole time, is very difficult to do it. It counters the whole purpose of what the welfare reforms are about.”

Some Tory backbenchers have allied with opposition parties to force the chancellor to make changes. The waiting time has been cut from six weeks to five and, from next month, housing benefit claimants will continue to receive support for two weeks after making their first claim for UC. It will also be possible to get a 100% advance on the benefit, with a year to pay it back, instead of being allowed only a 50% advance and being given just six months to return the loan. The work allowance is also being uprated in line with inflation.

The number of families who are in work but still living below the poverty line is continuing to rise. Over the next four years, incomes for low-paid households are expected to stagnate or, at best, rise very slowly. As a result, inequality is likely to increase, with the poorest working age households getting left behind.