By BENEDICT BROGAN

Last updated at 00:39 21 April 2008

A "why bother?" economy has been created in Britain which has left thousands with no motivation to work, a report published today concludes.

Successive governments have encouraged a welfare culture that has left every family facing a £1,300 bill because the poor stay poor, it claims.

The findings by the public services think tank Reform suggest that increased welfare dependency has made it more difficult for those on the lowest incomes to do better.

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Jean Thompson, right, with son Steven and granddaughter Jessica: All ten members of her family share a three-bedroom council house and have never worked

An education system with a "dismal record" of educating the poorest, and a complex welfare system, have together created a far more divided society than other European countries, it finds.

Means-tested benefits and higher taxes have reduced the incentives available to those on low incomes to better themselves, Reform says.

It concludes: "The unintended consequence has been a 'why bother?' economy in which a significant minority do not have the capability or motivation to succeed."

The report finds that social mobility has not improved since the 1970s, despite substantial increases in benefits-Compared to other industrial countries the UK has an above-average number of the low-skilled relying on state handouts, which reduces the economy's productivity.

Reform concludes that if the UK had the skills levels of the U.S. the benefit to the economy would be £32billion per year, or £1,300 per family.

And it points out that inequalities in the tax system mean that those receiving welfare who find work face punitive rates of taxation as for every extra pound earned they lose up to 90 per cent of their benefit.

Professor Nick Bosanquet, Reform's consultant director, said: "Social mobility is a vital economic issue, not just an equity issue.

"We need to look at new ways of making it happen in this much tougher economic environment.

"Every person failed by the education system and held back by the tax and benefits system means that the economy cannot fulfil its potential."

Publication of the report coincides with one from the respected Institute for Fiscal Studies which calls for a major overhaul of Gordon Brown's beleaguered tax credit system to provide better incentives for those on benefit to find work.

It calls for replacing the current "piecemeal" benefits system with a single programme which would give more to those who work, but less to those who do not.

The Mail highlighted the problem of those refusing to work last month, meeting families in which not one member has worked for three generations.

The grandmother matriarch of one, Sue McFadden,54, said: "Our neighbours are so snobby - they call us the 'Shameless' family and say that we ought to go out to work. But how can we work when we have all these children to look after?"