Gordon Brown said that as the Government extended opportunities to those out of work it also had to make people more responsible in taking up the work on offer and clamp down on the hidden economy.
He said a task force had been set up led by Lord Grabiner QC to bring together different Government departments to investigate the scale of the problem. The task force has been asked to consider increased fines and methods of forcing people to face up to their responsibilities and join the legitimate economy. "This loss of revenues, this incidence of fraud, this waste of resources cannot be allowed to continue and especially when there are jobs benefit claimants could take," said Mr Brown.
He said that a return to full employment was now "not only a promise but a possibility", and announced a multi-million pound drive to boost the number of people in jobs.
This includes an extension of the New Deal jobs scheme to over-25s, who will be offered a job, self-employment, work-based retraining or college training. Under the scheme any person who refuses three job opportunities has their benefits stopped indefinitely.
A spokesman for the Department of Education and Employment said that the same sanctions would apply to the over-25s. "It is the sanctions that have made it so successful in halving youth unemployment," he said.
The Chancellor said there are still a million job vacancies "waiting to be filled", and a national jobs hotline would help update unemployed people about new vacancies.
David Blunkett, the Secretary of State for Employment, said that pounds 100m from the windfall levy will be spent on extending the New Deal programme to over-25s, while a further pounds 10m will be used to improve its effectiveness.
Around pounds 50m will be spent at job centres on initiatives including touch- screen kiosks which hold vacancies.
"The Employment Service must improve the ways in which employers can notify their vacancies and make it easier for job seekers to apply for jobs," he said.
The Government will also help the long-term unemployed come off benefits and start up their own businesses with a new Enterprise Development Fund, cash help and new business scholarships.
"Britain will break out of the closed circle which has too often restricted enterprise to a few. Our poor communities do not need more benefit offices, they need more businesses creating more jobs," said Mr Brown.
Small firms will be able to take advantage of a pounds 150m research and development tax credit - "the most generous this country has ever seen".
Mr Brown said that, through regional development agencies and devolved bodies, venture capital firms would be set up in every region.
"Enterprise for all demands balanced economic growth across all the regions and nations of Britain," he said.
"Only by pursuing enterprise and fairness togetherfor all can we equip all of Britain for our future and secure rising living standards for all."