The Institute for Public Policy Research (IPPR) says the government is not rewarding parents who get jobs, while favouring those who do not work instead.
The think tank has published a report which reveals that 2.5 million families are living below the poverty line where one parent is in low-paid work.
The report says the benefits system offers little incentive for the second parent to get a job.
IPPR’s head of social policy Kate Stanley said the government needs to make a greater effort to meet its commitments on the issue. “The challenge is to ensure that work really is a route out of poverty,” said Stanley.
“Tax credits and the minimum wage have made work pay relative to being on benefits but these don’t yet go far enough to ensure more children are lifted out of poverty.
“More action is needed to combine financial support and measures to boost parental employment with action to deliver fairness on pay and opportunities for progression at work,” she concluded.
IPPR ssuggests several reforms to combat the problem of what it calls the “forgotten million”, including:
A new Personal Tax Credit Allowance to make it more attractive for both adults in a two-parent family to work. The second parent would be able to earn up to £100 a week before their tax credits were reduced, a move the IPPR says would make a family earning the minimum wage £36 a week better off.
Raising the value of tax credits for couples by one third to £91.31 a week. The IPPR says this would benefit 1.6m families and lift 200,000 children out of poverty.
Increasing the minimum wage in line with average earnings growth, ensuring tougher enforcement of the minimum wage, and extending the adult rate to people aged 21 and under.