Tax and benefit reforms introduced by the Government have weakened average work incentives, the Institute for Fiscal Studies has claimed.

The think tank said that despite Labour's stated aim to "make work pay" the extension of means-testing had lessened the desire to work or increase earnings for many people.

In a report funded by the Joseph Rowntree Foundation, the institute reports on the "trade off" between redistributing income and improving work incentives. It found that across the whole UK, the Government's reform programme to date had acted to weaken incentives.

On average, tax and benefit changes since 1997 means that someone choosing to work harder gets to keep two and a half pence less of each extra pound they earn, the IFS claimed.

But the trend is not true for all social groups - reforms have strengthened incentives to work and earn more for single parents, the report noted.

People on low incomes - who face having their means-tested benefits or tax credits withdrawn if they increase their salary - have the weakest work incentives, according to the IFS.

The report states that more than two million workers in Britain stand to lose more than half of any increase in earnings to taxes and reduced benefits.

Of these, some 160,000 would keep less than 10p of each extra pound they earned, the IFS claimed.

The report said that an alternative to the current system would be to target the sort of families that are likely to be poor, rather than directly to those that are poor. For example, it suggested that an extra credit for families with three or more children would be well targeted, but would hardly affect work incentives. Although the report concedes that this would be unfair on those who are poor but in small families.

Stuart Adam, one of the authors of the report, said: "Two strategies that governments have to help people on low incomes - providing them with financial support direct-ly, and encouraging them to earn more - generally conflict.

"There is no easy solution to this trade-off. Ultimately, governments need to decide how much they want to redistribute income to low-income families, and how much they mind if people work less as a result."

A Treasury spokesman said: "This Government has succeeded in halting and reversing the long-term trend of rising child poverty, and since 1997 has successfully lifted 700,000 children out of poverty.

"Thanks to reforms the Government has made to the tax and benefit system, since 1997 families with children are on average £1,500 per year better off in real terms, and those in the poorest fifth are £3,400 per year better off.

"At the same time, the Government has ensured that work does pay, through reforms to the tax and benefits system, and the introduction of the National Minimum Wage.

"This, along with the New Deal has led to an increase in employment of over 2.4 million since 1997, taking employment to a record level.

"Building on this success, the Welfare Reform Bill will seek to simplify the benefits system, further incentivising work while developing people's skills ."