The Institute of Economic Affairs, a free-market think tank, has hit out at the changes as ‘the single most incompetent change to the benefits system since the Second World War’.

Prof. Philip Booth, Editorial Director at the Institute of Economic Affairs, said: “The coalition government – despite the best intentions of Iain Duncan Smith – is stumbling about in no-man’s land in its attempts to reform the benefits system.

“The introduction of Universal Credit is an important administrative change but it will do nothing to remove the worst features of the benefit system.

“If we take a family of two adults and three children, that family loses 75 pence in taxes and reduced benefits for every extra pound it earns until income reaches nearly £39,000. Furthermore, the way in which the tax and benefits systems interact strongly penalises marriage.”

“Instead of tinkering, the government’s political capital should be used to radically reform the benefits system. We need a single means-tested benefit provided to working families on very low incomes – this should not encompass two-thirds of the working population as current means-tested benefits do.”

The think-tank proposes that child benefit is abolished all together in order to create a system that does not ‘discriminate against marriage and family formation’.

Booth added: ” Given that only two per cent of families with two adults where one of them is in full-time work and one in part-time work are living in poverty, it is crazy that our tax and benefits system discourage both work and marriage.”