BENEFITS are to be capped with an annual rise of just 1 per cent over the next three years.
The Government argues the move is necessary to save £1.9 billion from the welfare bill.
At the same time, there is to be a crackdown to reduce the estimated £3.2 billion lost from fraud, error and overpayments.
Benefits have historically risen in line with the rate of inflation.
The coalition believes the cap is fair at a time when salaries in the private sector are rising below the rate of inflation.
However, Labour says the move will mean a real-terms cut in support for many working people on low wages.
Legislation was passed in the House of Commons last night to allow the cap, first announced by Chancellor George Osborne last month.
The change will affect increases in jobseeker’s allowance, employment and support allowance, income support, elements of housing benefit, maternity allowance, sick pay, maternity pay and paternity pay as well as the couple and lone parent elements of the working tax credit and the child element of the child tax credit.
Deputy Prime Minister Nick Clegg believes money which would be saved from a cap in benefit increases would be better spent on public services.
He said: “It’s not a decision I relish, but it’s one of the many difficult decisions you need to take in order to fill the black hole in our public finances that Labour left.
“That decision alone saves this country just over £5 billion over the next three years.
“That’s the equivalent to employing 140,000-odd classroom teachers.
“And we’re doing that because we’ve taken separate decisions to protect the money for the NHS and schools.
“The challenge for people who don’t want to take that decision is where would you find that £5 billion?
“What would you cut? Schools, health or local government? Why do Labour support a 1 per cent pay increase limit for doctors, nurses and teachers but not for benefits?
“These are the questions Labour have got to answer before they can be taken seriously.”
Mr Clegg’s spokesman added the benefits being capped rose 5.2 per cent last year – when many private workers did not have a pay rise.
Work and Pensions secretary Iain Duncan Smith said: “The reality is that over the last five years following the recession, the gap has grown between what people in employment have been getting and what people on welfare have been getting – those in work seeing incomes rise half as quick as those on benefits.
“This is not fair, particular for taxpayers. Under the last government they saw taxes rise, they saw spending rise, they saw borrowing rise and they have left that for the next generation.”
CAPPING benefit rises will hit hard working people on low wages, opponents claim.
Clive Betts, Labour MP for Sheffield South East, said 60 per cent of people receiving the benefits which are affected are in work.
He said: “Most people who will be hit are those in work on low incomes trying desperately to balance the family budgets in difficult circumstances.
“The fact this change is due to come in at the same time as the top rate of tax is being cut from 50p to 45p in the pound is particularly galling.
“A 1 per cent rise in benefits is a real terms cut.
“Many of the people affected will be the same ones having their council tax benefits cut and their housing benefits reduced if their children have grown up and left home.
“All these changes will have a cumulative effect.
“We are already seeing increasing visitors to food banks, children going to school without having had any breakfast. Rent arrears and council tax arrears will go up, and people with mortgages might not be able to meet their payments.
“I don’t think it is right that people receiving benefits are labelled scroungers. If there is a hard core of people who don’t want to work, we should deal with them but we should not punish everybody because of a few people not making an effort.”