The Chancellor has warned that cuts would continue – with a cap on welfare bills including housing benefit and tax credits.

George Osborne said only the State Pension and the cyclical unemployment benefits will be excluded.

The move lays down the gauntlet to Labour to match the figure.

Mr Osborne said the cap would be set it at £119 billion in 2015-16. It will rise, but only in line with forecast inflation, to £127 billion in 2018-19.

The Chancellor told MPs: “None of these decisions are easy, but they are the right thing to ensure Britain lives within her means.”

And he added: “Britain should always be proud of having a welfare system that helps those most in need.

But never again should we allow its costs to spiral out of control and its incentives to become so distorted that it pays not to work.”

Meanwhile, people signed-up to disclosed tax avoidance schemes will be required to pay their taxes upfront under plans unveiled in the Budget.

Measures against tax avoidance include increase in HMRC budget for non-compliance, block on transfers of profits within groups and increased tax credit debt recovery rates.

There will be a tax on homes owned through a company to be extended from residential properties worth more than £2 million to those worth more than £500,000.