Exclusive: move will cap amount that can be deducted from benefit payments to repay short-term loans and debts

More than 1m of the UK’s poorest households will be £420 a year better off on average as a result of a change to universal credit set to be announced in next week’s budget.

The measure is intended to primarily help the worst-off families, and will be seen as a way for ministers to head off criticism over decisions to cut winter fuel allowance for most pensioners and maintain the two-child benefit cap.