The government has rejected MPs’ calls to pause debt repayments being taken out of people’s benefits despite warnings that claimants are being left destitute.

The move was announced on Thursday, while the media was focused on the Queen.

MPs on the Work and Pensions Select Committee had called in July for benefit deductions to be paused – as they were during the pandemic – and restarted only when inflation eased or benefit levels caught up.

They said the debt deductions were causing “hardship” for “households currently struggling with huge financial pressures”, and people needed “breathing space”.

Nearly half (45%) of people on Universal Credit are currently having deductions taken out of their benefits to repay debts, at an average of £62 a month. The debts are typically caused by historic overpayments and other errors, advance payments made during the five-week-wait for Universal Credit, and by arrears on energy costs and other priority bills. Currently the government can deduct up to a quarter of someone’s benefits each month to repay these debts.

MPs heard from charities including the Joseph Rowntree Foundation that these deductions were “a key factor in destitution”. The Trussell Trust said the practice was pushing “people into destitution and needing to turn to a food bank”.

Earlier this year, a report from Lloyds Bank Foundation found that deductions were “confusing, unmanageable, and forcing people into hardship, often through no fault of their own”, and that Universal Credit deductions, in particular, were “primarily the explicit result of government policy, not individual behaviour”.

But the Department for Work and Pensions said it did not believe pausing deductions was “necessarily in the claimant’s best interest”. It said that if that deductions were paused between now and the April 2023 rise, people might then not notice the impact of the next rise when it comes, and that the temporary help now would mean the impact of a rise next April could be “diminished” and people might “feel no better off” at that point.

Sara Ogilvie, director of policy, rights and advocacy at the Child Poverty Action Group, called on the government to “urgently reconsider its position on deductions” if they were “serious about supporting vulnerable households through the punishing months ahead”, pointing out that “the cost of living crisis has pushed many families to the brink” and that “two million children live in households affected by deductions… now is the time to pause them”.

Joe Cox of the Debt Justice Campaign told openDemocracy: “Deducting money from benefits at a time of soaring bills and falling incomes is cruel and unnecessary. Millions of families are going to struggle to get through the winter. Pausing deductions is a way to support those who are most exposed to the crisis. The government must stop deductions, and increase benefits in line with the cost of living.”

The current benefit levels, before deductions, allow a single person £77.28 a week to live on (£66.21 if they are under 25). The £20-a-week pandemic uplift to these levels was controversially ended last year.

The government announced earlier in the summer that people on benefits would receive a one-off payment of £650 to cope with rising energy bills, which will be over £1,000 more expensive on average than last winter, even with Liz Truss’s energy price cap announced on Thursday.

The government also rejected MPs’ calls to bring forward the uprating of benefits, currently not due to take effect till April 2023. In April this year, benefits were increased by an inflation rate that was seven months out of date – rising 3.1%, at a point when inflation was already running at 9%.

Claimants are eligible for additional money to help with housing costs – but this is “not intended” to cover the rent fully in many areas, meaning people have to make that shortfall up from their benefits, too. MPs called for the housing element to be increased, as happened during the pandemic, but the government rejected this call, too, citing its work on helping people on benefits save for a deposit to buy a house instead. According to housing charity Shelter, most private tenants have a shortfall, as the maximum amount is set to cover only the lowest 30% of rents in any given area, and there are other exclusions as well.

MP Stephen Timms, who chairs the Work and Pensions Committee, said: “The government’s rejection of our recommendations at a time when so many families are continuing to feel real pain from rising prices is disappointing.”

He added the government needed to work to “make the social security system more agile in adapting to turbulent economic times”.