An independent report into the performance of the fund said: “Fear of getting into debt or more debt means that families are making new decisions about how they prioritise their spending.”
The report, commissioned by the Department for Education and carried out by the Moorhouse Consortium, found that many families were cutting back on fun activities and some were skipping meals or going without essentials, such as a new winter coat.
“This financial juggling and fears about future changes to benefits is adding to the stresses, social isolation and family anxiety," it said.
The Family Fund is an independent charity, but funded by the government. Last week, the government announced it would receive a new round of funding worth £27.3m.
The charity handed out grants to 64,000 families last year. The most popular use of funding was for family breaks, with 20,354 families awarded a total of £10.9m to fund holidays in 2011/12.
Family Fund chief executive Cheryl Ward said: “Today the need for our work is even greater.”
The report was compiled through interviews with Family Fund and government representatives, a survey of 2,848 families that have benefited and in-depth interviews with 20 families.
Among recommendations made was for the Family Fund to look at more ways to measure the impact of its grants on improving lives.
Better link-ups with councils to gather data would help this work, the report adds.
The government is also urged to consider raising the criteria so that more families can benefit.
Grants are currently available to a family with a disabled or seriously ill child up to the age of 17, but the report calls for this to be raised to 19 and possibly 25.
The report cited research carried out by the charity Contact a Family last year in its report Counting The Costs.
This included a survey of 2,312 families with a disabled child, which found that benefit cuts and rising cost of living meant 86 per cent have gone without leisure or days out, and one in six is cutting back on food.
