I can't make any sense of the government's attitude to financial risk. When big companies or rich individuals are willing to take it, the official view is that they must be rewarded for having the courage to gamble. That's why PFI schemes are potentially so profitable for the private sector, why bankers still get bonuses, and why profits on share dealings are taxed at less than income. Yet when it comes to the poorest people, the policy now is to push them into taking tremendous risks, with a high probability of loss, and no corresponding hope of tremendous gains.

The welfare-to-work reforms are intended to discourage everyone but the very ill or disabled from leading a life on benefits. Fine, except for two problems. The first one we all know about: as last week's figures made plain, the jobs aren't there. The second problem is just as serious. Jobs aren't what they were. The government and the welfare system tend to talk and act as if finding work is the end of the problem, and as if happy jobseekers will have nothing left to think about except the gold watch they'll receive when they retire. But many jobs on offer, particularly those advertised in jobcentres, are precarious, temporary or part-time, or have uncertain hours. Leaving the security of benefits for jobs like these is like stepping out on to cracking ice. And our antiquated welfare system hasn't worked out where the life rafts and lifebelts ought to be.

Maeve McGoldrick, of the charity Community Links, which works with unemployed people in east London, says the benefits system simply can't cope with modern working life. It is designed for predictability, and that is just what has become so elusive, particularly at the bottom of the market.

If a single mother, say, is offered a steady minimum-wage job for 24 hours a week, the system can deal very effectively with that. It can calculate the tax credits and the housing benefit subsidy that will make work pay.

It falls apart, though, when it has to respond to fluctuating incomes or rapid changes in people's circumstances. McGoldrick says the majority of benefit claimants are now going into unstable jobs. They may be commission-based, or agency work, or zero-hours contracts. That means the income and hours worked can vary wildly from week to week. Someone on zero hours, perhaps with a shop or a cleaning firm, may have to be available for work at any time over a 40-hour working week. But there's no corresponding requirement on the employer actually to give them anything to do. So a worker may do a three-hour stint one week, 17 hours the next, 32 in the third week, and four hours at the end of the month.

Trying to deal with that sends benefit offices into meltdown. People earning a low wage can still be entitled to all kinds of financial help. But if their incomes fluctuate from week to week, so will their entitlement, and the system can't keep up. Weekly changes must be reported, and it can take weeks for each claim to be processed. Meanwhile, panicking claimants may find that their housing benefit has been cut or suspended, or their jobseeker's allowance withdrawn, on the assumption that what they earned three weeks ago is what they're earning now.

The system is just as bad at responding to people who leave benefit for what turns out to be a short-term job. Housing benefit is supposed to run on for the first month in work, while people wait to be paid, but half of all claimants don't get it because that's not generally known. The Department for Work and Pensions claims to have a rapid return scheme to make it easier for long-term claimants who are laid off to get their allowances back. In this age, you might expect that an official could just push a button for payments to restart. Not at all. Claimants must queue, phone offices and wait – frequently for weeks.

Delays like these mean nothing to people who have savings and equity and jobs. They are savage, searing experiences to those who live as close to the edge as long-term claimants inevitably do. These people have no resources. A month or more without income can be just what it takes to pitch people into the arms of loan sharks, or find themselves in terrifying rent arrears. Kate Wareing at Oxfam says that housing benefit is so badly run that it often takes six weeks to be reinstated. That causes immense stress. People sometimes lose their homes in that time.

The news that jobs of some kinds can't be trusted, and that the system won't protect you if you take them, runs like bush fire through New Deal courses. It makes people scared to leave what they know. That's rational. They may not have much but, if they stay put, at least they can be sure that their homes and essential bills will be paid for. As the TUC's report on vulnerable employment said last year, for this group "security of income has to be a priority. The risks of a catastrophic fall in income when they change benefit status are too great."

The significance of this widespread fear and insecurity is hopelessly underplayed. The government thinks, for instance, that its tax credit scheme to support people in work is the answer. Yet that too can make life worse for those who earn erratically, or switch between jobs and the dole. At the end of the year, poor families can be asked to repay thousands of pounds – a shock they cannot absorb. Instead, they may decide not to risk official work at all.

The government sticks to its mantra that work will always pay. It preaches the virtues of entering the workplace, in any form, on the assumption that low-paid jobs are just a starting point, and that people can work their way up. Its extra financial help to single mothers working under the New Deal runs out after a year, presumably because it thinks the mothers will be on higher pay by then. That's unlikely. A Treasury analysis in 1999 warned that low-paid jobs were rarely a ladder to high-paid ones. The days of moving from being a teaboy to MD have long gone, partly because the teaboy will now work, often precariously, for a contract catering company, and the MD won't ever know his name.

We have to deal with this new reality. Otherwise it will make sense for people to cling to benefits, some constructing their own safety nets by working on the side. The TUC and several of the poverty action groups think that nothing less than a rethinking of the welfare system for the 21st century will do.

Our government is responsible because it embraced the culture of flexible workforces and contracting out. Companies have cut their risk by transferring it to the lowest possible level – the low-skilled worker. These people are taking the full force of the economic storm, and yet they are the least able to bear it, either financially or psychologically. There is now a whole stratum of individuals who are likely to spend their lives spinning between low pay and no pay. The only way to make that tough existence even tolerable is to make the bridges and financial supports between the two much stronger than they are now.