The welfare budget will be slashed in the next round of Government cuts, Iain Duncan Smith said today.
The Work and Pensions Secretary said the stalled economy and need to trim the deficit meant more savings were required.
He said: "We will have reduced welfare bills by £18 billion at the time of the next election and reformed welfare so it will be more effective.
"Early action to cut spending has helped reduce the deficit by a quarter but with the rest of Europe and the USA in trouble, it's small wonder the UK economy isn't growing as we had hoped.
"George Osborne and I recognise this means we will have to make further savings in the welfare budget, but as we save we are agreed we must relentlessly focus what we do on transforming lives.
"Gone must be the days when Governments spent money to buy their way out of a problem."
Mr Duncan Smith's admission, in his speech to the Conservative Party conference in Birmingham, paves the way for more cuts when Chancellor Mr Osborne delivers his Autumn Statement in December.
Mr Duncan Smith said the party had a "once in a lifetime opportunity" to reform welfare, and hailed the Universal Credit which will replace a complex raft of benefits payments.
He called it "the most extensive shake up of the welfare system for years" - and cautioned unemployed claimants against shirking work.
"If you won't work with us to find work, you will lose your benefit," said the former Tory leader.
He went onto accuse Labour and trades unions of sabotaging a work experience scheme designed to help young people gain valuable insight into employment.
"The unions, with Labour support, have attacked the programme," said Mr Duncan Smith.
"They are trying to frighten off businesses, even going as far as calling it 'slave labour'.
"Just how out of touch they are? Labour and the unions would rather have the young people of this country living off state hand-outs, instead of being employed."
And he warned Labour leader Ed Miliband: "If you follow the unions, you will never lead."
Mr Duncan Smith said the details of where the axe would fall - and where extra investment in the system might be made - were still to be thrashed out.
"I believe, overall, that by the time of the Autumn statement the Chancellor and I will have agreed what both of us think are necessary and achievable out of the welfare system," he told BBc Radio 4's PM.
Among items still to be agreed on were the proposal to strip under 25s of housing benefit, he signalled.
"If, and I say if because we have to discuss and decide whether this is the right thing to do, if we were to go down that road we would actually be doing it for those coming into that age bracket not those who are already there," he said.
"This is much more of a debt than a deficit reduction as it would grow and grow in years."
Mr Duncan Smith declined to offer a personal opinion on the decision to protect universal benefits from the chop - even those paid to the richest pensioners such as winter fuel payments.
Asked about reports he urged Prime Minister David Cameron to abandon an election pledge not to touch them, he said: "I of course do not have an independent opinion.
"I have a collective opinion which is exactly the same as the Prime Minister's which is that we have agreed something as a party. People who are receiving these benefits should know that when you make a statement you stand by it."
That could change in the next Tory manifesto, he indicated.
"But for the moment all those in receipt of these benfits can sleep easy."
:: The veteran former party leader also denied refusing to leave his position in the recent reshuffle to become Justice Secretary - insisting Mr Cameron offered him a choice.
"I call that a really good, decent man who wants to find the best for the British public, believes that I was doing a good job in welfare reform and wants to know whether or not on balance it was best for me to try to apply some of those reforming ideas that I've got to the criminal justice system or whether it's best to make sure I deliver this.
"On balance, I felt too many politicians move too often - it's time for us to say to the civil servants: I'm staying put and you're staying put and we are all going to deliver this thing together.
"It was a very, very happy discussion. And I say that without even a sign of a tongue in my cheek."