Ministers have signalled a new shake-up of disability benefits that could see entitlements cut by up to £150 a week for more than half a million people.

The cuts to funding for “aids and appliances” for the disabled could save about £1bn a year and was announced the week before the budget. Charities warned that the cuts to personal independence payments (PIP) would be devastating after the move was confirmed by Justin Tomlinson, the disabilities minister.

Tomlinson said: “The introduction of personal independence payments to replace the outdated disability living allowance for working-age claimants has been a hugely positive reform.

“But it is clear that the assessment criteria for aids and appliances are not working as planned. Many people are eligible for a weekly award despite having minimal to no extra costs and judicial decisions have expanded the criteria for aids and appliances to include items we would expect people to have in their homes already.

“We consulted widely to find the best approach. And this new change will ensure that PIP is fairer and targets support at those who need it most.”

From January 2017, it is likely to hit people with incontinence or those who struggle to dress themselves and will affect 640,000 people by 2020. The changes could cut more than £1.2bn from the welfare bill by reducing “points” for mobility problems, which claimants need to add together to qualify for the living costs fund.

Disabled people must be awarded eight points to be paid standard PIP but the change means people will only earn one point if they have to use aids like a handrail or walking stick.

Debbie Abrahams, shadow disabilities minister: cuts are ‘an attack on dignity’. Photograph: Christopher Thomond/The Guardian

Liz Sayce, chief executive of Disability Rights UK, said: “This change is another unwelcome blow to disabled people’s independence, and will impact on people’s ability to work, enjoy family life and take part in the communities they live in.”

Debbie Abrahams, the shadow disabilities minister, said: “Removing support for people who need help to use the toilet or dress is an attack on dignity.”

“These further cuts would represent another huge blow making life even more difficult for many people who already facing huge barriers.”

Phil Reynold, policy and campaigns adviser at Parkinson’s UK, said: “This is a devastating step backwards for people with Parkinson’s. Parkinson’s impacts on every aspect of a person’s life and the government’s announcement that it will cut points in this way is absolutely senseless.

“If someone needs aids and appliances to carry out the most basic tasks that most people take for granted then they clearly need ongoing support to live independently, which is often expensive. They should not be penalised by making personal independence payments even more difficult to claim.

“The disability benefits system fails people with Parkinson’s at every turn, and requires major improvements to make it fit for purpose. It is essential that the department ensures that any long-term reforms make the system fairer for disabled people, rather than pushing them closer to the edge.”

Michelle Mitchell, chief executive of the MS Society, said: “This decision could have a devastating impact on the lives of people with MS. In the worst cases, they could lose up to £150 a week.

“PIP is an essential benefit which goes towards the extra cost of being disabled. The new plans will fail some of the most vulnerable people in society and we have serious concerns about the future health and welfare of those affected.”