The Government has embarked on the huge task of radically reforming the UK's "antiquated" benefits system amid warnings that the overhaul will not work unless more jobs are created.
Work and Pensions Secretary Iain Duncan Smith pledged the most sweeping changes in decades in a drive to simplify the structure and make work pay.
He gave a critical account of the complex welfare system, which he said had helped create ghettos of worklessness, often affecting generations of families.
The current arrangements amount to a "supertax" on some of the worst off in society, said the minister, adding that he feels a maths degree is needed to work out how to claim benefits.
Business groups and charities generally welcomed the announcement, but unions warned the plans could be derailed by the "enormous" job losses being sparked by the clampdown on public spending.
Mr Duncan Smith said he wants to unify the disparate elements that form the benefits structure as well as rectifying the "illogical" position of benefits paying more than work. Options include combining elements of the current income-related benefits and tax credit systems and bringing out-of-work and in-work support together in a single system.
Mr Duncan Smith said five million people are on out-of-work benefits, with a "staggering" 1.4 million on benefits for nine or more of the last 10 years, while the UK has one of the highest rates of workless households in Europe. One in six children will grow up in a workless household, said the minister, adding that up to three generations of the same family are growing up with no work in their lives.
"The benefits system has created pockets of worklessness, where idleness has become institutionalised. The welfare budget is spiralling out of control, up from £63 billion in 1996-97 to £87 billion in 2009-10, although the actual increase was £61 billion in the last 10 years. The key must be to break the cycle of dependency. We must make sure that work pays, even for the poorest."
TUC general secretary Brendan Barber said: "While the aim behind this certainly has merit, ministers have a big problem. Either you make those who are out of work poorer, yet we already have jobless benefit levels way below those when Mrs Thatcher was in power. Or you can boost income in work either through more generous benefits or a higher minimum wage. The first should be morally unacceptable, while the Treasury will not allow the second. Iain Duncan Smith is trapped in the Catch 22 of welfare reform."
Corin Taylor, senior policy adviser at the Institute of Directors, said: "The current welfare system is letting down both claimants and employers, and the radical reform proposals set out in this report are very welcome."