Would it be possible to give out benefits as a loan similar to student loans? That is, someone keeps a tally of how much you've received, and once you start earning a certain amount, you pay a certain rate on what you get above that.

Perhaps it might encourage people to stay on benefits because they feel they have to pay it back, but that's a gamble that successive governments have taken with a much larger proportion of society (if current rates of children going to university keeps up), so shouldn't be too much of a negative. Even if that turns out to be the case, you'd still be encouraging people to go for a £20,999.99 salary (if that were to be the threshold) from which you can get a sizeable amount of normal income tax anyway.