A radical shake-up of out of work benefits represents a "fair deal" for both the jobless and the taxpayer, Work and Pensions Secretary Iain Duncan Smith said today.
Mr Duncan Smith said a streamlined system would ensure people were always better off in work than on welfare - with tougher penalties for those who refused to take jobs.
Labour gave its backing to the reform effort but warned that swingeing cuts to other parts of the welfare state would mean people actually ended up worse off.
And leading anti-poverty charities accused ministers of creating a "climate of fear" and exposing families and children to the "risk of destitution".
Under the changes, the present complex system of at least 30 work-related benefits will be merged into a single Universal Credit.
They will end the "perverse disincentives" to stay on benefits by showing people they would be "better off for each hour they work and for every pound they earn", Mr Duncan Smith said.
A work programme will be introduced to help people return to the workforce - with some long-term jobless required to do unpaid community work.
But unemployed people who persistently fail to turn up or turned down and refused to apply for jobs will lose their £65-a-week Job Seekers Allowance for up to three years.
The allowance will be removed for three months on a first offence, six months the second time and three years on the third breach of the new rules - with no right of appeal.
The Secretary of State said it was "a sin" that 70% of the extra jobs created over the last 14 years had been taken by immigrants because British people were not "capable or able" to do them.
That showed that creating jobs was not the only solution to dealing with the five million on out of work benefits - 1.4 million of them claiming for nine out of the last 10 years.
Up to 850,000 people - including 350,000 children - could be lifted out of poverty as a direct result of the changes, Mr Duncan Smith suggested.
And simplifying the system could slash £1 billion a year from fraud and error.
"This new contract where we actually do our best to try and find work with people, to make them work-ready, to make work pay and to say you will always be better off in work than on benefits, is a fair deal for the taxpayer and a fair deal for the people who need our help," he said.
Prime Minister David Cameron said that for anyone able to work "a life of benefits will no longer be an option".
People "don't pay their taxes to pay for people to stay on benefit", he said.
Shadow work and pensions secretary Douglas Alexander said the reforms built on work done under the previous Labour government - and would have the Opposition's support if done properly.
But he said the massive cuts imposed elsewhere across the benefits system as the price of securing the investment from the Treasury undermined any potential benefits.
"We support the underlying principle of simplifying the benefits system and providing real incentives to work.
"My concern is that (Chancellor) George Osborne's recent actions reveal he doesn't support these principles - he has already both complicated the system and undermined incentives to work through changes such as the reduction in working tax credit.
"Some of the key aspects of Iain Duncan Smith's original plan already seem to have been cut and that could mean some people facing bigger barriers to getting back to work.
"And our overriding concern is that there is a fatal flaw at the heart of these proposals: without work they won't work."
There was an immediate backlash to the proposals - especially the sanctions regime - from many campaign groups.
Oxfam's director of UK poverty Kate Wareing said: "Changes to the benefits system proposed today will expose people to the risk of destitution. Removing benefits and leaving people with no income will result in extreme hardship for them and their families.
"This sanction, and the proposals to force people to do unpaid work are based on stigma. Most people receiving benefits do want to work, and punishing them as if they are criminals repaying a debt to society is not a fair way to treat someone entitled to support."
Even after the changes, the lowest-paid would still get to keep less of their pay than high earners, she said.
Sally Copley, head of UK policy at Save the Children, said: "It is hard to see how Britain's poorest children are going to be helped using sanctions creating a climate of fear.
"It is children who will suffer when a single mum is told to take a job, but there is not suitable child care available. It is the children who will suffer when the safety net is withdrawn for three months, living in homes where mums and dads already struggle to put a hot meal on the table or buy a winter coat.
"Breaking the cycle of poverty is important. Simplifying the benefits system is long overdue. But paying for this by welfare cuts for the poorest families is in no-one's interest. You don't get a second chance at a decent childhood."Reuse content