Sir Keir Starmer has called the current benefits system unsustainable, indefensible and unfair, and said the government could not “shrug its shoulders and look away”.

Addressing Labour MPs on Monday evening, the prime minister said the current welfare system was “the worst of all worlds”, discouraging people from working while producing a “spiralling bill”.

The comments come as Work and Pensions Secretary Liz Kendall prepares to set out changes to the welfare system and cut the benefits bill in the coming weeks.

Chancellor Rachel Reeves has earmarked several billion pounds in draft spending cuts to welfare and other government departments ahead of the Spring Statement.

Changes likely to be announced in the coming days include restrictions on eligibility for the Personal Independent Payment, which provides help with extra living costs to those with a long-term physical or mental health condition, and cuts to incapacity benefits for people unable to work and receiving Universal Credit.

There is unease over the plans within the party, with Labour MP Rachael Maskell warning against “draconian cuts” that risk “pushing disabled people into poverty”.

Maskell told the BBC she had picked up “deep, deep concern” among Labour MPs.

She said: “I look in the past at what Labour has achieved in this space and believe that we can hold on to our values, ensure that we’re helping people and not harming people.”

Another Labour MP, Neil Duncan-Jordan, also expressed concern, telling Newsnight: “If we are going to make poor people poorer then there will be a number of MPs who won’t be able to sign up to that.

“It feels like it could be a re-run of austerity and I’m worried about that.”

However, other sections of the Parliamentary Labour Party are calling for change.

The Get Britain Working group of 36 Labour MPs has said the government has a “moral duty” to help long-term sick and disabled people to work if they can.

In a letter to Kendall, the MPs said the country faced “hard choices” to overcome a “crisis of economic inactivity”.

Speaking at a meeting of Labour MPs on Monday night, Sir Keir said: “We’ve found ourselves in a worst of all worlds situation – with the wrong incentives – discouraging people from working, the taxpayer funding a spiralling bill.

“A wasted generation, one-in-eight young people not in education, employment or training, and the people who really need that safety net still not always getting the dignity they deserve.

“That’s unsustainable, it’s indefensible and it is unfair, people feel that in their bones.

“So, this needs to be our offer to people up and down the country: If you can work, we will make work pay – if you need help, that safety net will be there for you.

“But this is the Labour Party – we believe in the dignity of work and we believe in the dignity of every worker.”

A number of MPs leaving the meeting said they had been satisfied with the prime minister’s words.

One said they accepted that welfare reform had to happen and were reassured that he had said it had to be done with Labour values and through the dignity of work.

However, another said constituents were frightened and needed to know that support would be there.

They said there had been little recognition that reducing benefits like the Personal Independence Payment, which helps people keep their independence, had the potential to push up costs.

Labour MP Diane Abbott said she would have liked to query the impact of the prime minister’s proposed cuts to welfare but was told the meeting was full.

In a letter to Reeves, a dozen charities have argued there is “little evidence to suggest cutting benefits increases employment outcomes”.

The charities – including Disability Rights UK, Citizens Advice, Scope and Sense – urged her to “think again about cuts to disability benefits”.

They said: “There are disabled people out of work who want to work given the right support. And for some disabled people, work isn’t appropriate.

“Changes to welfare must start here. Not with cuts.”

But ministers are worried about the surge in the number of people claiming benefits since the Covid-19 pandemic and the cost to the taxpayer.

As of January, 9.3 million people aged 16 to 64 in the UK were economically inactive – a rise of 713,000 since the pandemic.

The Department of Work and Pensions says some 2.8 million people are economically inactive because of long-term sickness.

Last year, the government spent £65bn on sickness benefits and that figure is forecast to increase by tens of billions before the next general election.

Some of the reforms to the welfare system have already been announced and include plans to use 1,000 work coaches to help the long-term unemployed into work.

Conservative shadow businesses secretary Andrew Griffith said Sir Keir had “rightly” talked about the problem of millions of working-age people on welfare.

“That is a stain on our country’s character,” Griffith told the BBC. “But it also holds back the economy and it’s one of the reasons why we’re not growing.”

However, Liberal Democrat work and pensions spokesman Steve Darling said “slashing support without fixing broken public services is not the answer”.

“We need long-term reform and investment in health and social care, not short-term cuts that balance the nation’s finances on the backs of the most vulnerable,” he said.