Osborne to cut Coalition's welfare budget by another £10bn a year

George Osborne will today announce moves to cut welfare spending by a further £10bn a year as he warns the Conservative conference that Britain will face continuing economic pain.

The Chancellor's renewed assault on benefits threatens to provoke fresh Coalition tensions after the Deputy Prime Minister Nick Clegg said the poorest in society should not shoulder the burden of austerity measures. The Liberal Democrats will demand that the best-off should also pay more if welfare is to be cut so deeply.

Mr Osborne will today signal that he has reached agreement with Iain Duncan Smith, the Work and Pensions Secretary, over the need to reduce welfare spending by another £10bn by 2016-17. The two men clashed publicly over the move, with Mr Duncan Smith warning there was "no such thing as an easy target in welfare".

But in a joint newspaper article today, they say: "We are both satisfied that this is possible and we will work together to find savings of this scale."

David Cameron yesterday signalled that ministers were targeting benefits for further savings as he vowed to "level" with the public about the need for another £16bn of spending cuts in 2015-16. He said: "If we want to avoid cuts in things like hospitals and schools, services we all rely on, we have to look at things like the welfare budget."

The planned £10bn cuts will be in addition to the reduction in welfare spending of £18bn by 2014 which the Chancellor announced in the Budget in March. They will be driven through in conjunction with the introduction of the Universal Credit, which replaces means-tested benefits and tax credits and will be rolled out from next year. The Government insists it represents the biggest overhaul of the benefits system for a generation.

In his speech to the conference in Birmingham, Mr Osborne will repeat the Tories' commitment to protect universal benefits for pensioners, such as winter fuel payments. But the Chancellor will warn that further savings will be needed across Government spending to drive down the national deficit – and accuse Ed Miliband, the Labour leader, of ducking the issue at his conference last week.

He will spell out the Tories' opposition to the Liberal Democrats' cherished policy of a "mansion tax" on properties worth more than £2m. But he will insist that each of his Budgets has increased taxes overall on the very richest at the same time as scrapping the 50p top rate of tax.

The Tory leadership is attempting to use the conference to reach out to middle-income "strivers", announcing that council tax would be frozen for the third year and rail fare increases capped at 1 per cent above inflation.

Mr Cameron also announced that the Government was considering action to prevent new waves of EU migrants coming to Britain to work – something which could put the UK on a collision course with European rules on freedom of movement.

Mr Cameron reached out to Tory Eurosceptics by saying he was ready to invoke the UK's veto to block "outrageous" increases in the EU budget for 2014-20, but declined to say whether he would support a smaller rise.

The planned cuts have been agreed with Iain Duncan Smith despite his earlier opposition