Around 15,000 families with three or more children will not have their universal credit capped, the work and pensions secretary will say on Friday.
A two-child limit on the benefit came into effect in April 2017 – but did not initially apply to claimants whose children were born before that date.
This exemption was due to end next month, but Amber Rudd will say that it will instead continue.
The Child Poverty Action Group said the decision was “fantastically good news”.
However, the group is still calling for the two-child cap to be scrapped for all other families.
The “child element” of universal credit varies, but is worth at least £231.67 a child per month.
Ms Rudd will say: “As it stands, from February 2019 the two child-limit will be applied to families applying for universal credit who had their children before the cap was even announced. That is not right.
“These parents made decisions about the size of the family when the previous system was the only system in place.
“So I can today announce that I am going to scrap the extension of the two-child limit on universal credit for children born before April 2017.
“All children born before that date will continue to be supported by universal credit.”
What is universal credit?
Universal credit is a benefit for working-age people, replacing six benefits and merging them into one payment:
- income support
- income-based jobseeker’s allowance
- income-related employment and support allowance
- housing benefit
- child tax credit
- working tax credit
It was designed to make claiming benefits simpler, and is being introduced in stages across the UK.
Ms Rudd was made Work and Pensions Secretary in November.
She immediately accepted there were problems with Universal Credit, and promised to “learn from errors” and “adjust” the system after taking expert guidance.
Her predecessor Esther McVey had announced changes to ensure claimants were given more time to switch to the benefit and not have to wait so long for their money.
The system had been the target of complaints it was forcing some claimants into destitution and even prostitution.
BBC social affairs correspondent Michael Buchanan said Friday’s speech indicated Ms Rudd was planning reform rather than “simply managing the existing system”.
Even so, she will defend the introduction of the benefit by saying: “Universal credit is working for the vast majority of people…
“As a nation, I believe we all want a decent safety net: if you’re facing a difficult moment in life, the state should be there to help you.
“But it is vital that people are supported by this safety net, not trapped beneath it.”
Additionally, Ms Rudd will announce a slowdown in the “managed migration” to universal credit of claimants whose circumstances have not changed.
But, she will add, there will be no “overall delay” to the universal credit migration, which “will be completed, as planned, by 2023”.
Labour MP Frank Field, who chairs the Work and Pensions Committee, said: “I strongly welcome the secretary of state’s decision not to press ahead with what could have been the cruellest benefit cut in history.
“At the eleventh hour, she has prevented thousands of children from being plunged into poverty by an unjustifiable retrospective policy.”
By Michael Buchanan, BBC social affairs correspondent
This speech is billed as a reset of Universal Credit, a clear acknowledgment from Amber Rudd that further tinkering with the troubled reform will no longer do.
The last two budgets have seen billions spent trying to reduce the problems that have become ever-more obvious, from increasing use of foodbanks to private landlords refusing to take people on Universal Credit.
But this speech demonstrates that Amber Rudd believes a more fundamental assessment of the benefit is needed. That makes her the first Work and Pensions Secretary since Iain Duncan Smith to try to take responsibility for welfare reform rather than simply managing the existing system.
She will need to convince the Treasury in particular to back her judgement.