Child poverty is on course for the biggest rise in a generation, reversing years of progress that began in the late 1990s, leading charities and independent experts claim.

The stark prognosis comes before the release of government figures which experts believe will show a clear increase for the first time since the start of the decade.

It also comes as the chancellor George Osborne and work and pensions minister Iain Duncan Smith announced they had agreed a plan to slash a further £12bn a year from benefits spending. In a joint letter they pledged to attack the “damaging culture of welfare dependency”, and said it would take “a decade” or more to return the welfare budget to what they called “sanity”.

The introduction of the bedroom tax and cuts in benefits between 2013 and last year are blamed for fuelling the rise in the number of families whose income is below 60% of the UK average – the definition of relative poverty.

Calculations from the Institute for Fiscal Studies (IFS) have suggested that progress between the late 1990s and 2010 has been reversed and that the number of children living in relative poverty rose from 2.3 million in 2013 to 2.6 million in 2014. The Child Poverty Action Group says that with the government committed to implementing another £12bn of cuts in a new round of austerity, the problem will grow.

As tens of thousands of people joined an anti-austerity march through London on Saturday, Alison Garnham, the charity’s chief executive, said ministers were failing too many children.

“The government can no longer claim that deficit reduction is about protecting children’s futures now that it’s being made to confront a child poverty crisis, with the biggest rise in a generation now expected of its own making,” she said.

“With child poverty expected to rise by nearly a third in the decade to 2020 as a result of its policies, it’s clear the government’s approach is failing.”

Ministers were remaining tight-lipped about the release on Thursday of the Households Below Average Income statistics. Any increase in the number of children in poverty since 2013 would be an embarrassment. Child poverty fell from 3.4 million in 1998-99 to 2.3 million in 2010-11 – a reduction unparalleled in other wealthy nations over the same period – after the last Labour government promised to eradicate it by 2020.

Ministers insist that progress was being made up to 2013. A spokesman for the Department for Work and Pensions (DWP) said: “This government is making significant progress in tackling child poverty. There are 300,000 fewer children living in relative poverty since 2010 and the number of children growing up in workless families is at a record low.”

But experts agree that the gap between rich and poor is growing.

Enver Solomon, of the National Children’s Bureau, said: “Over the next five years, as austerity bites, we risk creating a country where poverty is so stark that children grow up in parallel worlds where rich and poor families have entirely different lifestyles that are poles apart.”

Yvette Cooper, who has put the fight against child poverty at the heart of her Labour leadership campaign, said the government’s record was a “damning indictment” of its approach and meant many children were being denied the start in life they deserved. “Their policies have delivered the biggest increase in child poverty in a generation and they have abandoned any pretence of even moving towards the target they promised to meet [to all but eradicate it by 2020].”

Cooper said ministers could not hide behind the state of the public finances to explain away the figures, adding that a rise in the minimum wage, support for a living wage, expanding childcare and ending the bedroom tax were all affordable and costed ways to start bringing child poverty back down.

The Conservative manifesto pledged to redefine child poverty. But the Treasury and the DWP are split over how this should be done. Duncan Smith believes there is a need to look beyond income to consider factors including whether a child lives in a workless household or has parents in poor health.

Charities are suspicious of such a move, arguing that it would give a misleading impression about the scale of the problem. They warn that any shift to focus on tackling the problem of non-working families, at the expense of low-income working families, betrays the government’s legal obligations to tackle child poverty.

Matthew Reed, chief executive of the Children’s Society, said: “It is a scandal that by 2020, in one of the richest countries in the world, hundreds of thousands more children are expected to be dragged into poverty, even without further cuts to welfare support.”

In January last year, David Cameron said the economic recovery would be sustainable “if we make sure that in the case of Britain we rebalance our economy and make sure it’s a recovery for all, north and south, to make sure that the poorest people benefit from a recovery”.