Benefits: Osborne Defends Welfare Shake-Up

George Osborne has robustly defended the Government's controversial benefits shake-up - insisting Britain can no longer afford to reward people who do the "wrong thing".

Speaking at a supermarket distribution centre in Kent, the Chancellor condemned the old system as "fundamentally broken" and warned Labour that they were out of step with public opinion on the issue.

Mr Osborne insisted that nine out of 10 working households will be better off as a result of the welfare and tax changes.

He said people in Britain understood that the welfare system needed to change.

"In 2010 alone, payments to working age families cost £90bn," he said.

"That means about one in every £6 of tax that working people like you pay was going on working age benefits. To put that into perspective - that's more than we spend on our schools."

He pledged to make sure people were better off in work than out, thereby making the system much "fairer". Changes, such as cutting housing benefit for social housing tenants deemed to have a spare bedroom, were simply asking people on welfare to take the same choices as working families, he said.

The Chancellor told the Morrisons workers: "For too long, we've had a system where people who did the right thing - who get up in the morning and work hard - felt penalised for it, while people who did the wrong thing got rewarded for it.

"That's wrong ... This month we will make work pay.

"What this Government is trying to do is to put things right. We're trying to make the system fair on people like you, who get up, go to work, and expect your taxes to be spent wisely.

"And we're trying to restore hope in those communities who have been let down by generations of politicians, by getting them back into work."

Wider welfare and tax changes coming into force this month will also see council tax benefit funding cut, and working-age benefits and tax credit rises pegged at 1% - well below inflation - for three years.

Disability Living Allowance is being replaced by the Personal Independence Payment (Pip), while trials are due to begin in four London boroughs of a £500-a-week cap on household benefits, and of the new universal credit system.

Mr Osborne dismissed "depressingly predictable outrage" about the reforms, claiming they would help the most vulnerable and "give people a ladder out of poverty".

He said: "Because defending every line item of welfare spending isn't credible in the current economic environment.

"Because defending benefits that trap people in poverty and penalise work is defending the indefensible.

"The benefit system is broken. It penalises those who try to do the right thing and the British people badly want it fixed.

"We agree - and those who don't are on the wrong side of the British public."

But Shadow Chancellor Ed Balls told Sky News that "the truth" was that households were losing out because of the reforms.

Citing an independent study by the Institute for Fiscal Studies showing the average family would be £891 worse off this year as a result of all the coalition's changes since 2010, he added: "Working families are worse off and now the Government is cutting the top rate of income tax only for the richest people.

"A millionaires' tax cut paid for by millions of working people. That's not fair, that's not right."

Changes that mean the rate for top-rate taxpayers has been reduced from 50% to 45% also come into effect this month.

Sky News Deputy Political Editor Joey Jones said Mr Osborne's speech was "combative" and "aggressive".

"He has not apologised for the stance he is taking," he said.

It came a day after Work and Pensions Secretary Iain Duncan Smith, the architect of the reforms, was facing a a growing backlash after suggesting that he could get by on £53 a week, rather than his current after-tax income of £1,600 a week.

In the wake of the comment in a radio interview, tens of thousands of people have signed a petition on the website, calling for the minister to try surviving on that money for a year.

During his speech on Tuesday Mr Osborne refused to be drawn on whether he could manage on £53 a week. In response to a question, he said: "I don't think it's sensible to reduce this debate to one individual's state of circumstances.

"We have a welfare system where there are lots of benefits available to people on very low incomes. 

"This debate is not about any individual, it's about creating a welfare system that rewards work."