A majority of people who receive a subsidy will be living in the public sector.
The new rules would mean the government would have the power to fine pensioners who fail to claim certain tax breaks.
What could happen if people don’t claim the £100-€200 a fortnight state-aid payments?
The tax credit system could be hit by large numbers of people not receiving enough, particularly those on low incomes.
The tax credits currently receive an average subsidy of £12.20 a week. This subsidy is likely to decline as the number of eligible claimants rises. The government wants to cut the subsidy by 3% a year.
Many households with a single earner without children are eligible for the state support. They will see their subsidy fall by 50%, according to the Treasury.
The government wants to cut the state-aid subsidy by 3% a year
Is there a ‘reform deficit’?
The government says the reforms are necessary because the welfare reforms have not been able to bring down waiting times or cut the number of people in poverty.
They point out the welfare bill is expected to rise from £31.6bn in 2012-13 to at least £38.9bn in 2016-17 before falling to £15.7bn in 2017-18.
Critics say cutting the state-aid scheme would take money away from struggling families rather than helping them to become more able.
“The welfare reforms have not been able to tackle the problem of poverty, despite the best efforts of this government,” says Labour’s Shadow Work and Pensions Secretary Owen Smith.
“Even when the benefits system is open to all, there is a huge amount of inequality between the rich and everyone else.”
‘No other way’
Media playback is unsupported on your device Media caption “The welfare reforms have not been able to tackle the problem of poverty, despite the best efforts of this government.”
The government says the reforms have been “successful” in helping people onto the state system.
But Labour accuses the government of going into crisis and trying to blame the past Labour government for its failures.
It says the current government was unable to do more because of the need to deal with the financial crisis. It is proposing a new “tough” budget to tackle rising unemployment.
However, David Cameron says the reforms are “not the end of cuts” and that the government’s welfare reforms in 2012 were “