Tax-free allowances should be scrapped and the money used to pay a flat-rate benefit to all adults, a radical new welfare reform blueprint has suggested.

The proposal, drawn up by the Fabian Society, is part of a proposed shake-up of the welfare system the think-tank says is required to stop tens of thousands of people falling into poverty over the next decade.

The report’s authors reject the idea of a “fully-fledged” universal basic income – the increasingly prominent idea of grouping all benefits spending into a single flat-rate payment for all adults. They warn such a plan would create too “many losers and not reduce poverty or improve the incomes of those with the least”.

But the Society’s researchers say a similar flat-rate “individual credit” for all adults that sat alongside the existing benefits system could “significantly reduce poverty and increase low and middle incomes”. They say child benefit could also be integrated into the same system, with a “child credit” paid to a child’s main carer.

“At this time there is not a good case for integrating universal credit, tax allowances and child benefit into a single flat-rate payment for each individual (ie a ‘basic income’),” the report’s authors write.

“There is growing interest in the idea, which has the merit of reducing the employment disincentives, complexity and intrusion associated with means-testing.

Rich getting richer

“But a basic income has significant disadvantages – any revenue neutral reform would create many losers and would not reduce poverty or improve the incomes of those with least today. Reform would be very unlikely to eliminate the need for means testing and conditionality.

“Instead, the tax-free allowances and child benefit should be converted into an ‘individual credit’ for all adults and a ‘child credit’ paid to the main carer. Unlike a basic income, this payment would sit alongside universal credit and as a result would significantly reduce poverty and increase low and middle incomes.

Iain Duncan Smith resigned over the Government's squeeze on welfare spending (Getty)

“The credits would be paid on a flat rate basis either through PAYE or in cash. These new credits would take the strain off universal credit by providing another mechanism for supporting the incomes of poorer households.”

The report’s authors says their proposals could represent a “modest basic income” of around £40 a week per person (or £160 for a family of two adults and two children) and that it should be paid to people with national insurance numbers who are on the electoral register. They suggest it could be withdrawn from people who reject offers of work “to secure public consent”.

The idea bears some similarities with proposals brought forward by researchers at the Citizen’s Income Trust. That organisation has suggested a limited basic income could compliment the current benefit system. They say it would be largely revenue-neutral, though they propose a slightly higher rate supplemented through income tax and national insurance. That proposal is also unconditional.

Shadow Chancellor John McDonnell has said Labour's manifesto could include a basic income trial (Rex)

Researchers at the RSA think-tank proposed a more substantial basic income system late last year, which would see every adult paid £71 a week.

Other aspects of the Fabians’ proposals include creating a saving account scheme that automatically saves and matches 1 per cent of workers’ earnings unless they explicitly opt out, and higher contributory benefits for middle and high income workers who lose their jobs. They have also called for the Government’s planned Universal Credit scheme to be made more generous by indexing payments to rising living and housing costs.

The proposals are juxtaposed with the claim that by 2030 low income households will be no richer than today – even if the economy grows strongly – thanks to current welfare policies.

The most ridiculous reasons people had their benefits sanctioned Show all 16 1 /16 The most ridiculous reasons people had their benefits sanctioned The most ridiculous reasons people had their benefits sanctioned "One case where the claimant’s wife went into premature labour and had to go to hospital. This caused the claimant to miss an appointment. No leeway given" The most ridiculous reasons people had their benefits sanctioned "It’s Christmas Day and you don’t fill in your job search evidence form to show that you’ve looked for all the new jobs that are advertised on Christmas Day. You are sanctioned. Merry Christmas" The most ridiculous reasons people had their benefits sanctioned "You apply for three jobs one week and three jobs the following Sunday and Monday. Because the job centre week starts on a Tuesday it treats this as applying for six jobs in one week and none the following week. You are sanctioned for 13 weeks for failing to apply for three jobs each week" The most ridiculous reasons people had their benefits sanctioned "A London man missed his Jobcentre appointments for two weeks because he was in hospital after being hit by a car. He was sanctioned" 2011 Getty Images The most ridiculous reasons people had their benefits sanctioned "You’ve been unemployed for seven months and are forced onto a workfare scheme in a shop miles away, but can’t afford to travel. You offer to work in a nearer branch but are refused and get sanctioned for not attending your placement" 2013 Getty Images The most ridiculous reasons people had their benefits sanctioned "You are a mum of two, and are five minutes late for your job centre appointment. You show the advisor the clock on your phone, which is running late. You are sanctioned for a month" The most ridiculous reasons people had their benefits sanctioned "A man with heart problems who was on Employment and Support Allowance (ESA) had a heart attack during a work capability assessment. He was then sanctioned for failing to complete the assessment" Rex The most ridiculous reasons people had their benefits sanctioned "A man who had gotten a job that was scheduled to begin in two weeks’ time was sanctioned for not looking for work as he waited for the role to start" The most ridiculous reasons people had their benefits sanctioned "Army veteran Stephen Taylor, 60, whose Jobseeker’s Allowance (JSA) was stopped after he sold poppies in memory of fallen soldiers" 2014 Getty Images The most ridiculous reasons people had their benefits sanctioned "A man had to miss his regular appointment at the job centre to attend his father’s funeral. He was sanctioned even though he told DWP staff in advance" 2014 Getty Images The most ridiculous reasons people had their benefits sanctioned "Ceri Padley, 26, had her benefits sanctioned after she missed an appointment at the jobcentre - because she was at a job interview" Jason Doiy Photography The most ridiculous reasons people had their benefits sanctioned "A man got sanctioned for missing his slot to sign on - as he was attending a work programme interview. He was then sanctioned as he could not afford to travel for his job search" 2012 Getty Images The most ridiculous reasons people had their benefits sanctioned "Mother-of-three Angie Godwin, 27, said her benefits were sanctioned after she applied for a role job centre staff said was beyond her" The most ridiculous reasons people had their benefits sanctioned "Sofya Harrison was sanctioned for attending a job interview and moving her signing-on to another day" The most ridiculous reasons people had their benefits sanctioned "Michael, 54, had his benefits sanctioned for four months for failing to undertake a week’s work experience at a charity shop. The charity shop had told him they didn’t want him there" Getty The most ridiculous reasons people had their benefits sanctioned "Terry Eaton, 58, was sanctioned because he didn’t have the bus fare he needed to attend an appointment with the job centre" Getty Images

Andrew Harrop, general secretary of the Fabian Society, said a viable future welfare reform policy would blend different approaches.

“For six years of the Cameron government, ‘austerity’ dominated all discussion of benefit policies. But social security for non-pensioners will be worse in 2020 than it was in 2010 and will carry on getting worse in the decade that follows, unless action is taken,” he said.

“It is time to turn a page and start to consider the long-term future of social security, as part of a strategic agenda for raising British living standards. Politicians need to find the confidence to argue that generous, well-designed benefits for non-pensioners are essential for a fairer, more prosperous future. Our political leaders can grasp the nettle and create a social security system for the next decade, designed for us all.

“Policy makers should begin to weigh up two broad alternative paths for reform. The first is to breathe new life into Brownite ‘progressive universalism’ by improving the mainly means-tested system we have today.

“The second is to create something closer to our successful pensions system, by striking a more even balance between means-tested, universal, contributory and private support, while also starting to integrate taxes and benefits. The first path is easier in the short term – and would help millions of people – but the second path would bring a broader range of benefits to a wider range of families.”

Labour welcomed the report. Debbie Abrahams, shadow Work and Pensions Secretary, described the plans as “comprehensive”.

“The Tories have a long record of failure on social security – from the failing work capability and PIP assessments; the unfair and divisive bedroom tax; the forced u-turn earlier this year on cutting support for disabled people; and cuts to Universal Credit meaning work incentives have all but disappeared,” she said.

“Like the NHS, our social security system is based on principles of inclusion, support and security for all, assuring us of our dignity and the basics of life, should any one of us become ill or disabled or fall on hard times. That safety-net will be inadequate without policy change.

Social divide is growing

“I am pleased that the Fabians have produced such a comprehensive analysis of options for the future to contribute to the debate as Labour work to design a social security system truly fit for the 21st century.”

A Department for Work and Pensions spokesman said: “Our welfare reforms are supporting people from all backgrounds as we create a Britain that works for all. We have revolutionised and simplified the welfare system with Universal Credit – which is already transforming lives by supporting people to move into work faster.”

“We have record employment with wages rising faster than inflation.”