Unemployed people who refuse to take up offers of work will lose their jobless benefits for three years under tough new sanctions to be announced today.
The penalty will be triggered automatically on the third occasion that claimants on jobseekers allowance (JSA) turn down a job offer without good reason; fail to apply for a suitable post; or do not agree to do community work.
The move will be included in a White Paper that will be hailed by the Coalition Government as the biggest shake up of the welfare system since its creation after the Second World War.
Iain Duncan Smith, the Work and Pensions Secretary, will outline plans for a universal credit aimed at ensuring that nobody is better off on benefits than in work. It will replace the patchwork of benefits and tax credits for people of working age.
He will insist that about 2.5 million of the poorest people will see their income rise under the shake-up, and that the number of workless households will fall by 300,000. But critics will ask whether enough new jobs will be available for the 1.5 million unemployed as Britain emerges slowly from recession.
Mr Duncan Smith will announce a new "claimant contract" under which the Government promises more intensive, tailor-made support for the jobless.
In return, greater obligations will be placed on them to seek work.
On their first "offence", JSA claimants will lose the benefit for three months. After a second refusal of work, they will lose it for six months, with the penalty escalating to three years on the third time they are deemed to be refusing to co-operate with efforts to get them off the dole.
Ministers aim to bring in what would be Britain's toughest-ever regime for the jobless by 2012 ahead of the phased introduction of the universal credit.
At present, jobseekers can lose their JSA payments-currently £64.45 a week for most people - for up to 26 weeks.
But they still receive "hardship payments" of about £40-£45 a week instead.
Government sources said the current penalty was at the discretion of jobs advisers and was rarely enforced.
In future, a mandatory system of sanctions would leave previous claimants without any jobless benefits. "We are not going to take away with one hand and give with the other," said one official.
There would be no right of appeal against the loss of jobless benefits.
Speaking in South Korea, where he is attending a G20 summit, David Cameron said: "We are doing more than any other government to help people get back to work. That's our part of the deal. Now those on benefit need to do their bit. Break that deal and they will lose unemployment benefit. Break it three times and they will lose if for three years. The message is clear: if you can work, then a life on benefits will no longer be an option."
Mr Duncan Smith will argue that "root and branch" reform is vital because five million people are trapped on out-of-work benefits and almost two million children grow up in homes where nobody works. One government source said last night: "This White Paper will finally tackle that problem and create a welfare system fit for the 21st century. We cannot afford to simply continue tinkering around the edges of the welfare system."
Today's document will say that 1.4million have been receiving out-of-work benefits for nine out of the last 10 years and that the UK has one of the highest rates of workless households in Europe, with 1.9 million children living in homes where no one has a job.
Douglas Alexander, the shadow Work and Pensions Secretary, said: "If the Government gets this right we will support them because of course we accept the underlying principle of simplifying the benefits system and providing real incentives to work. But the Government will not get more people off benefits and into work without there being work available."
Proposal Replace a plethora of working age benefits and Labour's tax credits with a single payment to ensure people are always better off in work.
Critics say Fine in theory, but will it really ensure no one is better off on benefits? Government is wrong to ditch Labour's guarantee of work or offer of training.
Controversy rating (out of five)
Proposal Toughest ever penalties for unemployed people turning down jobs, who will lose their allowance for three years if they reject three offers.
Critics say Where are all the new jobs? 600,000 public sector jobs are going to be cut, and possibly more in private sector.
Proposal Test whether current sick and disabled claimants are capable of some work. An estimated one million people judged able to return to work in future will lose the benefit after 12 months, supposedly saving £2bn a year.
Critics say Unfair to target sick and disabled. Some conditions vary over time.
Proposal £400-a-week cap on payments from next April. Payments reduced for people who have been on JSA for a year.
Critics say 750,000 households could fall into debt, hardship or lose their homes. High rents in cities could result in "social cleansing" as families are forced to move to areas with cheaper rents.
Proposal Rise in the basic state pension, currently £97.65 a week for a single person and £156.15 for a couple, with a £140 a week payment for each pensioner.
Critics say Plan not spelt out in detail yet and sounds too good to be true.