Tax credits for the working poor are set to fall victim to the government’s pledge to wipe £12bn from the welfare budget after David Cameron insisted Britain must stop the “merry-go-round” of handing benefits to those in work.

The Prime Minister has attacked the system introduced by Tony Blair’s Labour government whereby lower paid workers pay their taxes but then receive the same amount – and sometimes more – back in welfare.

George Osborne and the Work and Pensions Secretary Iain Duncan Smith confirmed yesterday they will “set out in detail all the steps” of how they will find £12bn of cuts in the welfare budget in next month’s budget and the spending review in the autumn.

Making a keynote speech in Cheshire today on his welfare reform agenda, Mr Cameron argued that his reforms will move Britain away from a “low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society”.

He claimed his government’s drive to reduce the £220bn welfare budget will tackle the “causes of stalled social mobility” and stop people from being “written off to a lifetime on benefits”.

He said: "There is what I would call a merry-go-round. People working on the minimum wage having that money taxed by the government and then the government giving them that money back - and more - in welfare.

"Again, it's dealing with the symptoms of the problem - topping up low pay rather than extending the drivers of opportunity - helping to create well-paid jobs in the first place.

"We need to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society."

Yesterday Mr Osborne and Mr Duncan Smith confirmed they were going ahead with the Conservative party’s manifesto commitment to cut the annual £26,000 benefit cap to £23,000 and said they would also “need to make significant savings from other working-age benefits”.

Iain Duncan Smith and George Osborne penned a joint article confirming they were going ahead with the £12bn of welfare cuts (LEON NEAL/AFP/Getty Images)

Writing in a joint article in today’s Sunday Times, Chancellor George Osborne and Work and Pensions Secretary Iain Duncan Smith say: “This government was elected with a mandate to implement further savings from the £220bn welfare budget.

“We will set out in detail all the steps we will take to bring about savings totalling £12bn a year in next month’s budget and at the spending review in the autumn,” the pair wrote in the Sunday Times.

“It took many years for welfare spending to spiral so far out of control, and it’s a project of decade or more to return the system to sanity.

“Reforming the damaging culture of welfare dependency and ensuring that work pays has been central to our mission to make Britain fit for the future.”

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They wrote the article a day after thousands of people marched in central London to protest against the government’s austerity agenda.