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Mr Duncan Smith forcefully told a conference in east London that five million people are on out-of-work benefits, with a "staggering" 1.4 million on benefits for nine or more of the last 10 years, while the UK has one of the highest rates of workless households.

One in six children will grow up in a workless household, said the minister, adding that up to three generations of the same family are now growing up with no work in their lives.

"The benefits system has created pockets of worklessness, where idleness has become institutionalised. The welfare budget is spiralling out of control, up from £63 billion in 1996-97 to £87 billion in 2009-10, although the actual increase was £61 billion in the last 10 years.

"The key must be to break the cycle of dependency. We must make sure that work pays, even for the poorest."

Mr Duncan Smith said the benefits regime often provides little incentive to work, meaning that some people would be taxed on the first eight or nine hours of the first 10 hours they work, describing it as a "supertax."

There are 14 manuals dealing with benefit claims, and one adviser recently spent 45 minutes on a computer with a lone parent before discovering she would be better off working, he said.

The system cost £3.5 billion to administer, while a further £5 billion was lost in fraud or errors, which are "staggering" amounts.

"We need nothing less than a complete rethink of the benefits system. A new regime to replace the current complicated system. We have a rare opportunity to reinvent our antiquated welfare system to reflect the nature of what people need."