A grim picture of the level of poverty in the UK was painted by the coalition Government today as it unveiled plans to radically change the system to "make work pay".
Ministers complained that entire communities were existing at the "margins" of society, trapped in dependency and leaving disadvantaged children to become disadvantaged adults.
Work and Pensions Secretary Iain Duncan Smith said sanctions will be used against benefit claimants who refuse to take up jobs, while all those on incapacity benefit will now be reassessed.
Charity groups said root and branch reform of the benefits system was "long overdue", but union leaders said the Government should be reducing unemployment by creating jobs, not driving people off welfare and "further into poverty".
Civil servants who administered welfare programmes told Mr Duncan Smith the system was "breaking" and in need of urgent attention, he said today.
He told an audience of welfare experts from the voluntary, private and public sectors that there was an "absurd" situation where some of the poorest people in the country faced huge penalties for trying to get off benefits and into work.
Pledging a new approach to fighting "persistent poverty", Mr Duncan Smith laid out some stark statistics showing there were more working age adults living in poverty than ever before, 5.3 million suffering "multiple disadvantages" and 1.4 million who had been on out-of-work benefits for nine or more of the last 10 years.
"This picture is set against a backdrop of 13 years of continuously increasing expenditure, which has outstripped inflation.
"Worse than the growing expense though, is the fact that the money is not even making the impact we want it to.
"A system that was originally designed to support the poorest in society is now trapping them in the very condition it was supposed to alleviate."
Mr Duncan Smith said that even in London, one of the richest cities in the world, wealth lived in close proximity to the "harsh realities" of poverty.
It was a "tragedy" that people on incapacity benefit for more than two years were more likely to retire or die than get a job.
"We must be here to help people improve their lives, not just park them on long-term benefits. Aspiration, it seems, is in danger of becoming the preserve of the wealthy."
The former Conservative party leader said he had inherited a "broken system", with almost five million people on out of work benefits and 1.4 million under-25s not working or in full-time education.
"We literally cannot afford to go on like this," said Mr Duncan Smith, pledging to end Labour's "programme-itis", where schemes were tailored "solely to meet the next headline".
The Government will create a Work Programme which will move towards a single scheme, including allowing older workers on to a welfare-to-work programme immediately rather than having to wait 12 months, as is currently the case.
Mr Duncan Smith highlighted the fact that people were better off claiming dole rather than working in a job paying £15,000 a year or less, risking trapping them and their families in poverty for years.
A report published by the Work and Pensions Department today revealed that income inequality in the UK was now at its highest level since comparable statistics began in 1961.
The research showed that social mobility in Britain was worse than in the US, France, Germany, Spain, Sweden, Canada, Finland and Denmark, and a higher proportion of children grew up in workless households in the UK than in any other EU country.
Sally Copley, head of UK policy at Save The Children, said: "Root and branch reform of a benefits system is long overdue. Nearly four million children are still living in poverty in the UK. Their families need a decent chance to work, not a system which means taking a job leaves them worse off."
Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development, said: "Mr Duncan Smith's approach to tackling poverty, worklessness and welfare dependency is the most visionary outlined by an incoming UK government minister in a generation."
Kate Wareing, Oxfam's director of UK poverty, said: "We broadly welcome this new approach to make the system fairer.
"Work should never be seen as a punishment and those on benefits should not be forced to work for less than the minimum wage. The assumption that people don't want to work is simply not true. Our experience is that people on benefits do want to work, and a big part of what holds them back is the benefit system."
Lizzie Iron, head of welfare policy at Citizens Advice, said: "Addressing poverty and inequality means making work pay, without freezing benefit levels, which would only serve to push people who can't work further into poverty."
Hugh Lanning, deputy general secretary of the Public and Commercial Services union, said: "Mr Duncan Smith's plans to force more people into work through harsher sanctions, and to extend the role of the private sector in back to work schemes, will do nothing to support unemployed workers."
Mind's chief executive Paul Farmer said: "The new Government has inherited both a benefits system that doesn't work and a benefits test that doesn't work for people with mental health problems."
Shadow work and pensions secretary Yvette Cooper said: "We've seen a lot of hype but no actual policies. These plans for sickness benefit reform are the ones Labour was already introducing.
"They are cutting £300 million from employment help that was getting young people into work - abolishing the Future Jobs Fund and cutting tens of thousands of youth jobs when unemployment is still too high. How can you get more people into work if you're cutting the work for them to go to?"