Gordon Brown said he would take action to tackle poverty traps that prevented people from going back to work for fear of losing benefits.
"Our commitment to making work pay, and to high levels of employment, can only be met by combining a sensible and prudent minimum wage with a generous and fair system of in-work support," he said.
Mr Brown said that the new tax system would ensure that those in work would be guaranteed a minimum income. By integrating tax and benefits this minimum income will be paid through focused tax cuts and credits.
"No one who is in work should, in future, have to go to the benefits office to receive a living income," he said in a speech to the Institute of Fiscal Studies last night.
"The tax system is about more than simply raising revenue in the simplest way. It must also help us to work towards our wider goals - of encouraging work as well as promoting enterprise and supporting families," he added.
Mr Brown said he would extend to other benefits the principle of the Working Families Tax Credit, which uses the tax system to ensure that a family with a full-time worker is guaranteed a minimum income of pounds 200 a week.
He said: "Our long-term aim is an employment tax credit paid through the wage packet", which would be available to households both with and without children.
The Chancellor held out the possibility of tax credits for homeowners returning to work, saying a new Green Paper on housing costs would look at mortgages as well as rents. "Taking a job should not put people in danger of losing their homes," he said.
Mr Brown revealed that the Government was also considering creating an integrated child credit, including the new Children's Tax Credit, income support and the working families tax credit
This "single seamless system" would provide a secure income for families with children in their transition from welfare to work.
"Child poverty is unacceptable and these measures show our determination to help all our children fulfil their potential," the Chancellor said.
But his remarks will provoke further suspicion among the 80 Labour MPs who rebelled in the Commons last week over a previous government attempt to reform the welfare system.Reuse content