JOIN USPrime Minister David Cameron's coalition government also plans a "universal credit" instead of the current complex system of separate benefit payments as part of reforms aimed at cutting Britain's huge deficit.
The announcement came a day after university students stormed the headquarters of Cameron's Conservative party during a march against plans to hike tuition fees, in the first sign of public anger against the austerity drive.
"We will make sure work always pays more than being on benefit," Work and Pensions Secretary Iain Duncan Smith said as he unveiled the plans before parliament.
The Conservative-Liberal Democrat coalition, which took power in May, describes the plans as the most radical since Britain's wide-ranging welfare state was put in place shortly after World War II.
Speaking in South Korea where he is attending the G20 summit, Cameron said: "It simply has to pay to work. You can't have a situation where if someone gets out of bed and goes and does a hard day's work they end up worse off."
Cameron also condemned as "completely unacceptable" the actions of students in yesterday's protests in which 14 people were injured and 50 arrested.
Duncan Smith said the plans would reduce the yearly five-billion-pound (5.8-billion-euro, USD 8.0 billion) cost of fraud and error on Britain's welfare bill, which now accounts for roughly a third of government spending.
The government wants to introduce a sliding scale of penalties for those who either decline a job offer, fail to apply for a job they are advised to or do not turn up for mandatory four-week manual labour placements.
The weekly 65-pound unemployment benefit will be stopped for three months for those who violate any of the conditions. That would rise to six months for a second violation and three years for a third.
The plan for a single benefit payment to replace the system of handouts and tax breaks for housing and childcare would, meanwhile, lift 800,000 people out of poverty, Duncan Smith said.
"The universal credit will provide a huge boost to those who are stuck in the benefit trap," he told parliament.