Most working-age and disability benefits will be increased in line with inflation (measured using the consumer prices index) next year, Chancellor George Osborne has revealed.
The child element of Child Tax Credit will also be uprated in line with CPI, and will rise by £135 per year in 2012/13.
This means an increase by 5.2%, way ahead of the current average pay rise in the UK.
Delivering his Autumn Statement, Osborne said: "The government will ensure that the welfare system remains fair and affordable while protecting the most vulnerable in society."
However, the government will not go ahead with the planned £110 above inflation increase to the child element of the Child Tax Credit.
It also won't increase the couple and lone parent elements of the Working Tax Credit in 2012/13.
The chancellor said this is to ensure the welfare system remains affordable.
In addition to these changes, the Osborne also announced that the government will invest a further £380 million a year by 2014/15 to double its offer of 15 hours of free childcare a week for the most deprived two-year-olds in England.
A total of 260,000 children will be covered under the scheme – equating to 40% of two-year olds in the UK.
Mark Jones, head of protection at LV=, says: "Parents are all too aware that having a child comes with a hefty bill, especially when looking at the cost of childcare.
"The government scheme will be a welcome benefit for the families struggling most to meet the high costs of childcare."