In a speech on welfare reform and Christian values at Southwark Cathedral, Mr Lilley accepted that the falling earning power of the least skilled poses a welfare problem.
"Across the developed world, the earnings power of brawn has fallen behind that of brain," he said, posing difficulties in providing benefit levels which did not undermine incentives to work, study and save.
But over the past 15 years even the least well-off have seen improvements, he said. Most benefits are higher in real terms and recent research has "blown apart" the idea that those at the bottom are the same people trapped in poverty and getting poorer.
In fact, research by the Institute of Fiscal Studies has shown that half of those in the bottom tenth of the income band rose to a higher income band within a year. "In short, far from the poor getting poorer, many of them have been getting richer," he said, adding: "We live in a more mobile society than is often portrayed."
Sharp benefit rises would worsen the unemployment trap and a minimum wage, as advocated by Labour, would destroy low-paid jobs. The big difference between the Tories and Labour, was Labour's "dangerous preoccupation" with equality, Mr Lilley said.
"Conservatives believe that eliminating poverty and pursing equality are not merely different, they are ultimately incompatible. We can only make decent provision for those unable to help themselves if we have a prosperous economy and that required incentives and rewards for work, skills and risk-taking."
Calls for more equality were "too often a mask for the politics of envy" and implied "the elimination of incentives and the destruction of jobs". The "handful" of highly-publicised cases about fat cats "have been used to paint a false picture of the top 10 per cent of the population whose incomes, we are constantly reminded have grown most rapidly in recent years".
The top tenth of households included single people earning just over pounds 22,000 a year. "Those who condemn the current distribution of incomes as too unequal ought to tell us what level of inequality they would find acceptable, and why," he said, adding that they should define the maximum people should be allowed to earn or keep.
Chris Smith, Labour's social security spokesman, said that Mr Lilley had ignored "the massive increase in the number of people depending on benefits," under the Conservatives. His policies, he said, were "trapping the unemployed on benefit" rather than helping them into a decent job.Reuse content