Millions of welfare claimants are set to have their benefits scrapped and replaced with a single "universal credit", it was reported today.
The decision represents a victory for Work and Pensions Secretary Iain Duncan Smith in his lengthy battle with the Treasury over his plans to overhaul the welfare system, The Times reported.
Under the changes, housing benefit, income support, incapacity benefit and dozens of other payments will be swept away in a major reform programme intended to break the culture of welfare dependency by making work pay.
The new system will carry a guarantee that anyone taking a job will be better off than if they were on the dole, with claimants allowed to keep more of their benefits when they enter work or increase their hours.
Mr Duncan Smith has made clear that the introduction of the universal credit is essential to his reform plans, and will bring long-term savings as the overall welfare bill falls.
But he faced fierce resistance from the Treasury, which feared that making the changes would be costly at a time when it is seeking major spending cuts across Whitehall.
Chancellor George Osborne has made clear that the cost of benefits must come down to cushion the impact of the cuts on other frontline public services.
The Times reported that the Department for Work and Pensions (DWP) would be able to claim upfront a "large chunk" of the £9 billion annual savings which Mr Duncan Smith believes the new system will achieve through lower administration costs and reduced fraud.
A DWP spokesman said: "We are working closely with the Treasury and any decisions will be made in the context of the spending review.
"We are all agreed on the urgent need to reform the welfare system and help more people into work and off benefits."
But while Mr Duncan Smith appears to have reached a settlement with the Treasury, there is still no sign of a resolution of his fellow right-winger Liam Fox's bitter struggle over the defence budget.
The Defence Secretary has warned that the "draconian" cuts facing the services would have "grave consequences" for the Conservative Party and the Government, but his concerns were brushed aside yesterday by David Cameron who said his fears were "unfounded".
Shadow work and pensions secretary Yvette Cooper said that the Government needed to explain how the scheme could be paid for.
"When we looked at similar proposals a year ago we were advised this would either cost billions of pounds or mean big cuts in support for lots of low-income families," she said.
"Ministers need to tell us which it is and where the money is coming from. We support going further on benefit reform, but it must be done in a sensible way to help people into work and keep people out of poverty."