Gordon Brown was facing a backbench rebellion today over proposals to cut the benefits of some of the poorest families, it was reported.
Treasury plans to pare back the housing allowance by up to £15 a week will mean some claimants could lose a fifth of their income, The Times reported.
Currently, half of those receiving the housing allowance - around 300,000 people - are helped by a policy that allows them to keep up to £780 a year if they find accommodation that costs less than the maximum benefit.
But from 1 April they will no longer be able to pocket the leftover cash in a move aimed at saving an estimated £160m, the newspaper said.
The plan has sparked anger among Labour backbenchers, including Frank Field, the MP who led the revolt against the abolition of the 10p income tax rate.
The MPs are concerned that scrapping the policy would destroy competition among landlords, enabling them to raise rents to the allowance maximum.
Mr Field, who is tabling an amendment to oppose the change, told The Times: "At one stroke, they get rid of a reform aimed at getting flexibility into a fairly inflexible market by giving people incentives to shop around.
"The timing for this could have been decided in Conservative headquarters."
Homelessness charity Crisis said people on £65-a-week jobseeker's allowance could lose 20% of their income under the proposals.
The charity's chief executive Leslie Morphy said: "This proposal is ill considered and potentially counterproductive. It beggars belief that the Government intends to introduce this when, by its own admission, it has no idea what the impact on claimants will be. We urge the Government to reconsider."
Labour MP Karen Buck, who campaigns on housing, said: "We should not under any circumstances be taking money from the poorest and making them choose between reasonable housing bills and meeting day-to-day expenses.
"I don't know how many that applies to. Either way, either the savings aren't there or poor people will suffer."
Sarah Teather, the Liberal Democrat housing spokeswoman who discovered the change contained in the Budget, said: "£15 a week may be small change to ministers, but for families struggling to make ends meet it is incredibly important.
"Gordon Brown has once again abandoned the people who need the most help."
A spokeswoman for the Department for Work and Pensions told the newspaper: "Local housing allowance is aimed at providing the people who need it most with decent accommodation.
"This small change will not affect our customers' ability to pay their rent and further support is available to those on a low income to help with other expenses."
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