An "unacceptable" postcode lottery in benefits sanctions must be tackled to stop claimants being treated differently depending on where they live, MPs have said.
Penalties have increased in severity and can have "serious consequences" such as forcing people into homelessness, the Public Accounts Committee (PAC) said.
The committee warned of the "appalling situation" many housing benefit claimants faced after they were wrongly hit by sanctions.
MPs found that penalties do encourage some people into jobs but the Department for Work and Pensions (DWP) could not be confident about what works best because its data is poor.
In a report they said: "There is an unacceptable amount of unexplained variation in the department's use of sanctions, so claimants are being treated differently depending on where they live.
"It does not know whether vulnerable people are protected as they are meant to be. Nor can it estimate the wider effects of sanctions on people and their overall cost, or benefit, to government."
It follows a scathing report in November by the National Audit Office that found sanctions varied ''substantially'' across the country, with some Work Programme providers making more than twice as many referrals as others dealing with similar groups in the same area.
More than a million unemployed benefits claimants have to meet certain conditions, such as showing they are looking for work, to receive their payments.
MPs called for the DWP to trial issuing warnings for first offences and for variations in sanction referrals to be monitored.
The department must report back on improvements in the records it keeps on the system and work to estimate the impacts of sanctions on claimants as well as the wider costs to government.
Meg Hillier, who chairs the PAC, said: "Benefit sanctions have been used as a blunt instrument by Government.
"It is an article of faith for the Department for Work and Pensions that sanctions encourage people into work. The reality is far more complex and the potential consequences severe.
"Sanctions and exemptions are being applied inconsistently, with little understanding of why. Some people who receive sanctions stop claiming without finding work, adding to pressures on other services.
"Suspending people's benefit payments can lead them into debt, rent arrears and homelessness, which can undermine their efforts to find work.
"A third of people surveyed by the charity Crisis who were claiming housing benefit had this stopped in error because of a sanction - an appalling situation to be faced with.
"All of this highlights the need for a far more nuanced approach to sanctioning claimants, with meaningful measures in place to monitor its effectiveness.
"As a priority the Government must make better use of data and evidence from the front line to improve its understanding of what best supports both claimants and the interests of taxpayers in general."
A DWP spokesperson said: "Our sanctions guidance is the same right across the UK and the fact is the number of sanctions has more than halved in recent years.
"Sanctions are an important part of our benefits system and are only used in a very small percentage of cases as a last resort when people don't fulfil their commitment to find work."