David Cameron has said the Welfare Reform Bill is "not an exercise in accounting - it's about changing our culture."
The Prime Minister says the legislation will replace the complex array of benefits with a single Universal Credit.
Incentives will be offered to entice the long-term unemployed back into work but also there will be sanctions if they refuse to.
Mr Cameron said the changes would slash £5.5 billion from the welfare bill in real terms over the next four years by reforming tax credits, taking child benefit away from higher-rate taxpayers and limiting housing benefits.
However, the Government has ditched controversial plans to cut housing benefit by 10 per cent for anyone on jobseeker's allowance for more than 12 months.
The reform package has come under attack from unions, who accused the coalition Government of punishing the unemployed and impoverished for their own misfortunes.
"Long-term unemployment has doubled not because of a sudden increase in work-shy scroungers, but as an inevitable result of economic policies based on cuts that destroy growth," said TUC general secretary Brendan Barber.
"Making low-income working families thousands of pounds worse off through welfare cuts over the next two years to claim that they will be slightly better off in 2013 is an absurd argument that will ring hollow as families suffer the toughest income squeeze for nearly a century."