Long-term unemployed people could be barred from using welfare payments to buy alcohol, cigarettes or gamble under plans being launched by the Conservatives.

The proposals would also reduce Universal Credit payments for claimants who have not made consistent contributions to the welfare system through taxation.

Tory leader Kemi Badenoch said the current system was “unfair to workers”.

Under the plans, unemployed people claiming Universal Credit would receive the full rate of benefits for six months while they look for work.

After six months, the full payment would be restricted to claimants who had made sufficient contributions to the welfare system through taxes over a number of years.

Those who did not meet the threshold would see their standard Universal Credit payment cut by a third.

The reduced payment would be transferred to a “back to work” pre-payment card, which would prevent spending on cigarettes, alcohol, betting and cash withdrawals.

Mrs Badenoch said: “Some will say this is unfair on people claiming benefits. What is unfair is a system where someone who can work chooses not to and earns more from benefits than someone in a job.

“If you can work, you should work. Helping people into work is not punishment. The best welfare is a well-paid job. So, we will be tough on those who exploit the system because the current system is unfair to workers, taxpayers and those who truly need support. We should not be borrowing from our children and grandchildren to support people who simply refuse to work.

“Welfare must be a safety net for those who genuinely need it, not a lifestyle choice for those who can’t be bothered.”

The reforms could save the taxpayer £538 million a year by moving 350,000 benefits claimants onto a new “subsistence allowance”, the Tories estimate.

The party sought to justify its plans by suggesting it was unfair for taxpayers to shoulder the costs of long-term jobless benefits claimants.

Helen Whately, the shadow work and pensions secretary, said: “We cannot go on like this – with millions of people living on benefits instead of in work. Britain can’t afford it. It’s not fair on taxpayers footing the bill. For people living on the breadline, work, not benefits, is the way out of poverty.

“A strong country needs people to work and contribute. But Labour have made it easier to claim and harder to get a job.

“We believe that if you can work, you should. And work should always pay better than benefits. Our plan gives people a safety net and a clear incentive to get a job.

“Welfare should recognise the contribution people make through years of work. We know people can fall on hard times. What you’ve paid in should make a difference to the support you get. Our welfare system should be a safety net, not a lifestyle choice.”

Under the plans, every two years a UC claimant has worked would buy them an extra year on the full rate of the benefit.

The so-called subsistence rate available to those who have not contributed enough would be worth 70p for every pound of the full rate.

Those on the subsistence rate would be given a pre-payment card to access their benefits.

People who are off sick, who are disabled, or who are claiming UC while in work, would be exempt and unaffected by the plans.

Further plans for welfare reform are likely to be revealed at the Conservative party conference later this month.

Robert Jenrick, Reform’s Treasury spokesman, said the Tories’ plan will not put a dent in the benefit bill.

“This welfare plan is so weak the Lib Dems could have authored it,” he said.

“The Tories left more people on long-term benefits and benefit fraud at record levels.

“Now they offer a spending card that won’t even put a dent in the coming £400 billion bill. It’s a sticking plaster on a wound they opened.

“Kemi’s latest decision to let the permanently unemployed go on claiming forever is tantamount to stabbing workers in the back.”

Meanwhile, Labour suggested the blame for problems in the welfare system lay with the Tories.

A Labour Party spokesperson said: “The Conservatives had 14 years to fix our welfare system but they completely failed to make meaningful reforms.

“Now they are proposing an unworkable new card scheme, which does nothing to tackle the numbers of people their system left signed off and written off.

“While the bill for the taxpayer rose by £33 billion in their last year in government, this Labour Government is introducing effective and sustainable welfare reform alongside a £3.5 billion employment support package to help people stay in or return to work, and the national rollout of the jobs guarantee for young people who have been on universal credit.”