A Labour government would attempt to cut the benefits bill by letting local authorities rent properties from private landlords on behalf of residents, Ed Miliband has revealed.

The Labour leader defied critics to set out a series of tough measures designed to cut the welfare bill, in a major speech on benefits.

But he highlighted measures to cut the cost of housing, rather than penalising benefit claimants.

It follows a row over plans to impose a regional benefits cap which could actually be lower than the current cap of £26,000 introduced by the Coalition government.

Ed Balls, the Shadow Chancellor, said Labour was considering “a fair cap on household benefits” which reflected different housing costs in different parts of the country with an independent body such as the Low Pay Commission deciding “whether the cap should be higher in high-cost housing areas like London, but potentially lower in other parts of the country”.

The policy, overseen by Birmingham MP Liam Byrne (Lab Hodge Hill), the Shadow Work and Pensions Secretary, provoked an angry response from some Labour backbenchers. Former Government whip Nick Brown (Lab Newcastle East) warned: “I would not be in favour of such a scheme and I would not be able to support it. That proposal would take money away from my constituents.

“Benefits are already far less generous now, a regional cap would not help, we should be looking at rent controls.”

Mr Miliband has now set out policies which he argued would cut the cost of housing – potentially allowing a Labour government to cut benefit payments without forcing claimants to leave their homes.

He said he wanted to end the existing system in which housing benefit claimants in private accommodation find their own properties and negotiate directly with landlords.

Instead, councils would rent properties in bulk, negotiating lower rents, and then let them out to claimants.

The money saved would be used to build new homes – which would have the effect of cutting the cost of housing further.

Other proposals set out by the Labour leader included providing higher Jobseekers’ Allowance payments to people with a history of working.

At the moment, single unemployed people can receive £56.80 a week if they are under 25 or £71.70 if they are older.

Under Mr Miliband’s plans, those who have been in work for a long period of time would be entitled to higher payments.

However, means testing of Jobseekers Allowance would be extended to more people who do not have long history of working.

In a major speech, the Labour leader also confirmed plans to dock benefits for people who have been unemployed for two years unless they accepted a job allocated to them by the Government, in what Labour calls a compulsory jobs guarantee.

He said: “The next Labour government will have less money to spend. If we are going to turn our economy around, protect our NHS, and build a stronger country we will have to be laser focused on how we spend every single pound. Social security spending, vital as it is, cannot be exempt from that discipline.

“So we will reduce the cost of failure in the social security system including the cost of long term worklessness and the cost of housing benefit.”

And he will say: “We expect individual families to negotiate with their landlords when we know there aren’t enough houses to go around. It is inevitable that tenants end up paying over the odds - and so does the state, in the housing benefit bill. It’s time to tackle this problem at source. We can start to bring about the shift from benefits to building. Bringing the housing benefit bill down for the long-term too.”