Families claiming in-work benefits face giving them up and enduring hardship to avoid being “punished” under a planned government migration crackdown, experts have said.

More than 200,000 people living legally in the UK are on the 10-year route to settled status, which requires legal migrants to renew 30-month visas four times – at a cost of £3,908.50 including healthcare costs per renewal – before they can apply for indefinite leave to remain (ILR).

Under proposals by the home secretary, Shabana Mahmood, if people have used public funds, even in work, the wait would double to 20 years.

The migration charity Ramfel has spoken to families who would be affected by the change and say they would have “no choice” but to stop using public funds – such as child benefit, universal credit, tax credits and disability benefits – if the government proposals go ahead.

Nick Beales, Ramfel’s head of campaigning, said the consequences would be parents working 80 hours a week and worsening child poverty. “Our research shows that Shabana Mahmood’s plans to penalise migrant parents for needing basic state support will plunge racialised British children into poverty. This is cruel and heartless and will harm these children in both the short and long term.

“The government talks a good game on ending child poverty, but unless this includes all children then ultimately these words are hollow. They must immediately scrap plans to introduce their so-called earned settlement model and cap existing settlement routes at five years. This will ensure that British children of migrant parents do not see their life chances greatly diminished.”

AdviceUK, the largest network of independent advisers in the UK, said Mahmood’s “fairer pathway to settlement” consultation had increased insecurity and inequality for migrants and their families who are attempting to apply for leave to remain.

A consultation on Mahmood’s proposals closed on 12 February. The changes could be in force by April and it is expected they will apply retroactively.

The proposals say the baseline qualifying period could be reduced by “considerations” including English competency, taxable income, working in public service, volunteering or being the parent or child of a British citizen, but warn “additional years will take precedence over any reduction to the baseline”.

The cost, stress and uncertainty a further prolonged wait for ILR would place on career prospects is causing alarm. One parent, who asked to remain anonymous, said: “It’s like you have to choose between settlement and surviving. It’s ridiculous. A decade of paperwork, a decade of your mental health, a decade of everything, and yet still you’re going to add to that.

“What are you trying to tell us? We’re going to continue punishing you people because 10 years is not enough. We give you access, but yet we are going to reverse it and punish you for it.”

Most people on the existing 10-year route are Asian and Black. The government proposes an even tougher “earned settlement model” that sets the “baseline” qualifying period at 10 years, adding an extra five years for people who have used public funds for less than 12 months, or an additional 10 years for those accessing them longer.

Cases seen by AdviceUK include Julia, a carer and mother of three, who is on the 10-year route and only one year away from qualifying for ILR. Fearing that accessing benefits would add 20 years to her route, she cancelled all benefits she was legally entitled to, including housing benefit, universal credit and the disability living allowance of £103.10 a week for her autistic daughter.

She said: “I’ve stopped the benefits, even though I need them because I’m so scared I will not be able to get my settlement. It feels so unfair that I accessed benefits because I’m on a low wage and now that is being used against me.”

Meanwhile, Ramfel surveyed 68 parents – all from West African, South Asian and Caribbean backgrounds – and conducted focus groups with another five.

Out of 51 contributors using public funds, 90% (44) said they would forgo them to avoid being penalised, despite the fear of homelessness and debt, being prevented from full-time work by childcare costs and caring responsibilities, and difficulty affording housing, food, fuel bills and school trips.

Ramfel’s report said: “Of 134 children referred to in the survey, over 50% were British citizens. The proposals create a two-tier settlement system that punishes people on lower incomes (and) force families to choose between immediate survival and long-term security.”

Launching the consultation in November, Mahmood said: “We have built a multi-faith, multi-ethnic democracy that is pluralistic, grounded in tolerance towards difference. But it does demand contribution and integration.

To become a part of this country, permanently, is therefore not a right but a privilege – and one that must be earned.”