Chancellor George Osborne has announced an uncompromising squeeze on benefits, freezing welfare for working Brits until 2017 in a move he said would save £3bn.
And he said the latest Treasury estimate pointed at a need for £25bn more permanent public spending cuts, dismissing the idea of raising money to pay down the deficit with tax rises. Another £13bn is planned from ongoing Whitehall spending cuts.
In his keynote address to the Conservative Party conference in Birmingham, Osborne made it clear that he would expect working people to shoulder the majority of the economic burden, with a speech that abolished the punitive 55% pension tax and exempted pensions from future freezes or cuts, as well as disability benefit.
Osborne told the Conservative Party conference that it was unfair that increases in state help outstripped pay rises since the start of the recession. "Even with the reforming decisions that Iain Duncan Smith and I have taken, benefits have risen more than earnings since Labour's great recession," he said.
"That is not sustainable for any nation and it is not fair either. So I can tell you this today, working age benefits will have to be frozen for two years."
Osborne said the policy would save £3 billion and would exclude disability and pensioner benefits. He added he wanted a welfare system that is fair to those who you use it and pay for it."This freeze on working age benefit saves the country over £3 billion. It's a serious contribution to reducing the deficit. Pensioner benefits and disability benefits will be excluded.
"And to those in work I say this - where is the sense in taxing you more only for you to be given some of your own money back in welfare. The best way to support people's incomes is to make sure those out of work get a job and those in work pay less tax."
"The debts that need reducing, the small businesses that need supporting, the jobless who need employing, the infrastructure that needs building, the better future for Britain that needs securing. We here resolve we will finish the job that we have started," he said.
Osborne said that there were "still too many young people who have fallen for a culture of welfare dependency and a life on the dole".
"It's a scar on our society, a tragic waste of human talent and we can end it in the next Parliament," he said. "So let this party of progress make another choice - let's abolish long-term youth unemployment altogether."
Outlining a pledge to "abolish" youth unemployment, Osborne said the party would replace job seekers' allowance, reform housing benefit and take the benefit cap down to £23,000.
"Families out of work should not get more than the average family in work," he said. "All of these savings will be used to fund three million new apprenticeships, three million more chances for a better life so we help our citizens get jobs instead of more immigration from abroad."
"Britain faces some big choices. Choices about whether we are going to live within our means or let rising debts threaten our economy again. Choices about whether we are going to win business investment or drive it away. Choices about whether we are going to tackle youth unemployment and poor standards in schools, or let down a generation," he continued.
"Choices about building the infrastructure our economy needs or letting it decay. Choices about whether we are going to trust our hard-working taxpayers to make their own decisions about their lives and their communities, or take control away from them. The past or the future: that is the choice Britain faces and we in this hall have no doubt - we will choose the future."
The Chancellor said he would deliver the "lowest, most competitive business taxes of any large country in the world".
But he added: "It is this pro-business Conservative Chancellor who says to some of the biggest technology companies in the world this today. You are welcome here in Britain with open arms. You have the advantages of our skilled population, broadband connections to deliver your services and our NHS to keep your employees healthy.
"Advantages that have to be paid for, so while we offer some of the lowest business taxes in the world, we expect those taxes to be paid not avoided. Some technology companies go to extraordinary lengths to pay little or no tax here. If you abuse our tax system, you abuse the trust of the British people and my message to these companies is clear. We will put a stop to it: low taxes but low taxes that are paid - part of our effort to reduce the deficit."
Osborne earlier tore into Ed Miliband over his failure to mention the deficit in his keynote speech to the Labour Party conference last week. "Ed Miliband made a pitch for office that was so forgettable he forgot it himself. In all seriousness, forgetting to talk about the deficit is not just some hapless mistake of an accident-prone politician, it is completely and totally a disqualification for the high office he seeks," Osborne said to laughs from the hall.
The speech went down a storm in Birmingham with the party faithful but drew some inevitable criticism from anti-poverty campaigners and charities. Matt Downie, director of policy at Crisis said the plans to freeze welfare could "spell disaster" for people currently struggling to pay their bill, calling further cuts to housing benefit "cruel and counterproductive".
"People who need the support of housing benefit to make ends meet have already seen cut after cut in the amount they receive. If they go ahead, today’s plans are likely to drive up homelessness and push many more households closer to the brink."
Natalie Bennett, leader of the Greens, said economic recovery could not be achieved "by ruthlessly targeting the poor and vulnerable"
“We should acknowledge that we are a wealthy economy that can afford to pay decent benefits to everyone who needs them, as a decent, humane society should," she added. "That must be paid for by rich individuals and multinational companies paying their way - something that this government has notably failed to enforce."
But others welcomed many of the policies, particularly the abolition of the controversial pension tax and the commitment to deficit reduction
John Cridland, director-general of the Confederation of British Industry said Osborne should "credited for sticking to his guns on deficit reduction but we shouldn't underestimate how far we have to go."
“Setting low and fair business taxes is the right goal for the UK," he continued, also welcoming the change to pension tax which he said would "encourage people to save more, and with greater flexibility, for their retirement."
“There is a real issue in the UK with people not saving enough for retirement, especially as we are now enjoying longer lives.
George Bull, a senior tax partner at accountants Baker Tilly, said: "By abolishing the 55% tax charge in certain circumstances, the Chancellor has gone much further than was expected. This will be great news for the estimated 320,000 pension pot holders who will be affected by the change as it removes an important part of the ‘heads I win, tails you lose’ aspect of decisions which people have had to make about post-retirement income.
"For those who can afford it, that will have the effect of making direct-contribution pension plans a uniquely tax-favoured means of passing wealth down from one generation to the next."Suggest a correction