Chancellor George Osborne's proposals to scrap housing benefit payments for young people aged under 25 are ‘a dangerous move' – experts have warned.

Giving a New Year speech on the state of the economy in Birmingham this morning, Mr Osborne said: ‘Government is going to have to be permanently smaller – and so too is the welfare system'

He confirmed that if the Conservative Party won the next general election additional £12bn welfare cuts would be needed in the first two years of the next Parliament.

'That's how to reduce the deficit without even faster cuts to government departments, or big tax rises on people,' Mr Osborne said.

The chancellor reconfirmed proposals set out in the Autumn Statement last December to set a cap on the overall benefits bill this year and to enshrine budget responsibility through a Parliamentary charter.

In response, Grainia Long, chief executive of the Chartered Institute of Housing, (CIH) said the government was concentrating its efforts on entitlement to benefits in an attempt to control costs rather than fundamental problems facing housing and labour markets.

‘CIH has already warned that cutting housing benefit for under 25s would be a dangerous move,' Ms Long said.

‘It is difficult to build the economy without a young, mobile workforce,' Mr Long said.  She said young people would be unwilling to risk moving for work in the absence of a safety net and pointed out many under 25s would have paid tax and national insurance before needing to claim benefits.

‘If the government really wants to cut the housing benefit bill, it should look at tackling the UK's housing crisis by building more homes,' Ms Long continued.

‘The reason the housing benefit bill is so high is that the cost of housing is becoming unaffordable for many people, including an increasing number of people in work,' she said.