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George Osborne said Britain could no longer afford to be a country where £100bn was spent on paying benefits for those of working age.
Announcing a two-year freeze on benefits for those who could be working, Mr Osborne said: "Families out of work should not get more than the average family in work."
He said that benefits had risen more than earnings "since Labour's Great Recession" and more had to be done to drive down welfare costs, which accounted for a third of all Government spending.
Mr Osborne added the move would save the country £3bn and hinted there would be a further £9bn of welfare cuts to be announced in the run up to the General Election.
The Chancellor insisted the Tories' "long-term economic plan is working" as he attempted to outline a choice for voters between the Conservative's "economic competence" and a Labour that would return to country to the downturn of recent years.
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