Welfare payouts for the jobless have risen almost twice as fast as average salaries over the last five years, according to official figures.
Out-of-work benefits have increased in value by 20% since 2007, compared to a rise of 12% in private sector pay.
Work and Pensions Secretary Iain Duncan Smith said the increases had cost the taxpayer £6.3bn since the start of the recession in 2008.
He claimed that the figures proved automatically increasing the handouts with the rate of inflation is unfair on working people.
Mr Duncan Smith said: "Working people across the country have been tightening their belts after years of pay restraint while at the same watching benefits increase. That is not fair.
"The welfare state under Labour effectively trapped thousands of families into dependency as it made no sense to give up the certainty of a benefit payment in order to go back to work.
"This government is restoring fairness to the system and Universal Credit will ensure it always pays to be in work."
The Government wants to reform the system and impose a 1% cap on most working-age benefits and tax credits for the next three years but Labour are against the move.
However, the Opposition has produced its own analysis claiming that Jobseeker's Allowance (JSA) had not risen in line with wages over the past decade.
Labour's shadow work and pensions secretary Liam Byrne said longer-term figures showed JSA had risen by 32% since 2002/3 while average earnings rose 36% over that time.
"Iain Duncan Smith has given the green light to a £14bn cut to tax credits that's pushing millions of working families into poverty and now means thousands of part-time workers are better off on benefits," he said.
"Now he wants to hit working families again with his strivers tax bill. Yet this omnishambles government thinks its right to give an average £107,000 tax cut for 8,000 millionaires," he said.
"This Tory-led government is comprehensively out of touch with the reality of Britain's working families."
Under Chancellor George Osborne's plans, child benefit, housing benefit and Universal Credit will also be capped for two years from 2014/15.
Breaking the link with inflation is predicted to save the Government almost £2.4bn by the 2015 general election and a further £11.8bn in the three years after it.
But critics say it will hit low and middle-income families and increase homelessness and hunger.
The Government is also introducing a new Universal Credit system this year, which will replace most out-of-work handouts and is aimed at making it pay to work.
The scheme will unite tax and benefits in one system and prevent total handouts exceeding the average wage.
The Government claims around three million families - mostly from the bottom of the income scale - will be better off by around £168-a-month under the changes.