Osborne making further welfare cuts
The benefit reductions come on top of £18 billion cuts in welfare already under way, and are likely to put the Tories on collision course with their Liberal Democrat coalition partners.
But Mr Osborne will say in his keynote address to the Conservative conference in Birmingham that, while the wealthy should contribute the most to the cost of reducing the state deficit, it is not possible to balance the books "on the wallets of the rich" alone.
Mr Osborne is expected to admit that the job of repairing the British economy following the financial crash is "taking longer than we hoped, because the damage was greater than we feared". But he will add: "The economy is healing... Let the message from this conference be clear: we will finish the job we have started."
Work and Pensions Secretary Iain Duncan Smith is thought to have resisted the proposals - first floated in Mr Osborne's March Budget - to slice £10 billion from the welfare budget by 2016/17 in order to protect spending in other Whitehall departments.
He is understood to have argued that Prime Minister David Cameron should reverse a pre-election pledge to protect universal benefits for older people, such as free bus passes and winter fuel payments, by removing them from wealthy pensioners. But he and the Chancellor announced in a joint article in the Daily Mail that they had reached agreement that the savings can be found without touching the universal benefits for pensioners.
"We are both satisfied that this is possible and we will work together to find savings of this scale," they wrote.
The move is likely to infuriate Liberal Democrats. Deputy Prime Minister Nick Clegg told his party's conference last month that he would not allow "wild suggestions" of a £10 billion cut in welfare, while Chief Secretary to the Treasury Danny Alexander told delegates: "We simply will not allow the books to be balanced in a way that hits the poorest hardest."
But Mr Osborne will say that a further £16 billion of savings must be found in 2015/16 alone to meet his target of balancing the nation's books within five years, and he will make clear that sums of this magnitude cannot be found simply by increasing taxes on the rich. He is expected to say: "Just as we should never balance the budget on the backs of the poor; so it's an economic delusion to think you can balance it only on the wallets of the rich."
© 2012 Press Association