A project run by Oxford city council and the Department for Work and Pensions found long-term jobless claimants were 2% less likely to find work for every pound of income lost through housing benefit cuts.
The EU-funded project sought to help unemployed and underemployed people to find or increase employment. Of 230 participants, 63 people found work or increased their hours during the project, with 85% remaining in work until at least the end of the project.
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The DWP dismissed the conclusion and pointed at its own national evaluation, which found capped claimants were 41% more likely to find work than households whose incomes were below the cap.
The 2014 report also found that 40% of capped households managed to avoid the penalty by finding work.
The Oxford project instead found just 27% of capped households moved into work.
It says: “Conventional wisdom suggests that taking money off benefit claimants (eg by sanctions or cutting benefit rates) acts as a financial incentive to get a job.
“Our analysis says that the opposite is in fact true, at least for this project cohort.
“Higher benefit losses may correlate with higher rent and larger families, and financial hardship; as childcare and debt are established barriers to work."
It added: "It is perhaps unsurprising that customers with higher benefit losses are less rather than more likely to get into or back into work.”
A DWP spokesperson said: “Our welfare reforms are incentivising work.”
Evaluation of the Oxford project also found that the support provided was more likely to help individuals who had been out of work for between six months and a year.
Researchers suggested that this too counteracts conventional wisdom, which suggests it is easier to find work if you are already working or have just lost a job.
"Our analysis says that the provision of support services to project customers experiencing unemployment for between six months and a year increased their chances of finding work by a factor of six," the evaluation says.
"This indicates a clear benefit in providing dedicated services (including support with confidence and motivation) for this group, which may help them into work soon.”