Britain has one of the meanest welfare systems in Europe as unemployment benefits have failed to track wages, a senior economist has warned.
It comes as the Chancellor Jeremy Hunt considers cutting benefits including Universal Credit ahead of Wednesday's Autumn Statement. Typically ministers use the September figure for inflation when increasing working-age benefits, which would mean a 6.7% hike.
But Mr Hunt has not ruled out using October's far lower figure of 4.6%, which economists say would cut Treasury spending by billions. He argued on Sunday the Government needs to take "difficult decisions to reform the welfare state".
Speaking on Sky News, the Director of the Institute for Fiscal Studies (IFS) Paul Johnson, said a lot of people are currently out of work "in a time of a tight labour market".
And he warned: “We do have possibly the meanest welfare system in Europe in terms of how it treats those who are unemployed. "The level of unemployment benefits have not risen in real terms in more than 50 years, whilst earnings and so on, have gone up two and a half three times. The level of that benefit is way below where it used to be relative to earnings.”
With speculation rife over tax cuts, the IFS chief also highlighted the Tories have put up tax over this Parliament more than any Parliament in history. He said: "The truth is he and his predecessors have put up tax more over this Parliament than has happened over any Parliament in history.
"That's because they've had no choice really, because the public finances are in such a mess. We're spending so much on debt interest, we're actually spending more on other things, the economy is doing dreadfully badly, the population is ageing, all of those things are pushed in one direction.
"The next really striking thing for people to understand is, for all of my lifetime, and I'm knocking on a bit now, taxes have been 32%-33% of national income. "They've suddenly ratcheted up to 36%-37% over this Parliament. Now, my guess is they're not going to go back down to where they've been over much of my lifetime, because of all of those pressures."
Appearing on BBC's Sunday with Laura Kuenssberg show the Shadow Chancellor Rachel Reeves also called for benefits to be increased by the higher rate. She said: "If you pick and choose from year to year which inflation number is the cheapest thing to do, then what you see is the gradual erosion of people's incomes.
"Half of the people who are claiming Universal Credit are also in work. This is to top up low pay and insecure work. "I don't think the Government should just pick and choose for them - they have a responsibility to ensure that everybody can afford in a civilised country to put food on the table and pay their rent and pay their gas and electricity bills".
The senior Labour figure also pledged to keep using September's inflation rate to increase benefits if her party wins power at the next general election.