• Universal credit will guarantee unemployed are better off taking jobs than staying on the dole
• Iain Duncan Smith says scheme will save £9bn a year

Millions of welfare claimants are set to have their benefits scrapped and replaced with a single “universal credit”, it was reported today.

The decision represents a victory for work and pensions secretary Iain Duncan Smith in his lengthy battle with the Treasury over his plans to overhaul the welfare system, the Times reported.

Under the changes, housing benefit, income support, incapacity benefit and dozens of other payments will be swept away in a major reform programme intended to break the culture of welfare dependency by making work pay.

The new system will carry a guarantee that anyone taking a job will be better off than if they were on the dole, with claimants allowed to keep more of their benefits when they enter work or increase their hours.

Duncan Smith has made clear that the introduction of the universal credit is essential to his reform plans, and will bring long-term savings as the overall welfare bill falls.

But he faced fierce resistance from the Treasury, which feared that making the changes would be costly at a time when it is seeking major spending cuts across Whitehall.

Chancellor George Osborne has made clear that the cost of benefits must come down to cushion the impact of the cuts on other frontline public services.

The Times reported that the department for work and pensions (DWP) would be able to claim upfront a “large chunk” of the £9bn annual savings which Mr Duncan Smith believes the new system will achieve through lower administration costs and reduced fraud.

A DWP spokesman said: “We are working closely with the Treasury and any decisions will be made in the context of the spending review. We are all agreed on the urgent need to reform the welfare system and help more people into work and off benefits.”

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