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George Osborne targets unemployed in speech

George Osborne
Lefteris Pitarakis | Getty Images
George Osborne

U.K. Treasury Chief George Osborne unveiled plans to overhaul unemployment benefits on Monday, as he attempts to boost his party's standing in the polls.

Speaking at the Conservative Party Conference in Manchester, Osborne said that those who have been out of work for three years will have to take part in a new government scheme – or risk losing their welfare benefits.

The social security changes, along with the early introduction of the controversial "Help to Buy" scheme to kickstart the housing market, are part of attempts by the ruling Conservative government to boost its opinion poll ratings ahead of a general election in 2015.

(Read more: UK acts to reduce housing bubble fears)

Under the £300 million ($484 million) "Help to Work" program, the long-term unemployed will be told to carry out community service work – such as cleaning up graffiti – in order to continue receiving support.

Jobseekers will also be given the option of attending the job center on a daily basis, and those with "underlying problems" – such as mental health issues, illiteracy or problems with drug use - will be offered "intensive support," Osborne said.

"For the first time, all long-term unemployed people who are capable of work will be required to do something in return for their benefits and to help them find work," he said. "No one will be ignored or left without help. But no one will get something for nothing."

The move comes as the Conservatives attempt to win over a skeptical electorate with the slogan "For Hardworking People." There is a wide-spread sense of frustration in Britain about the growing number of long-term unemployed; official data showed that almost 469,000 people had been out of work for more than two years between May and July this year – up 27,000 from 2012.

A YouGov poll published on Sunday showed that the U.K.'s main opposition Labour party, headed by Ed Miliband, have a comfortable lead in the polls with 42 percent of the vote, followed by the Conservatives with 31 percent. Their coalition partners, the Liberal Democrats, had 9 percent of the vote.

Housing boost

Osborne also backed his government's controversial efforts to shore up Britain's housing market in his speech.

"Too many people are still being denied the chance to own their own home," he said. "We are the party of home ownership, and we're going to let the country know it."

(Read more: Is Osborne blowing a credit bubble?)

Both the government's "Funding for Lending" scheme, which offers banks money at a cheaper rate in order to boost lending, and the "Help to Buy" program, which offers homebuyers loans of up to 20 percent towards a new property, have been criticized amid fears that they could create a housing bubble.

Data from the Bank of England on Monday revealed that mortgage approvals rose to a five-and-a-half year high of 62,226 in August. It comes as the Hometrack index, also published on Monday, revealed that Britain's house prices in September rose by 0.5 percent - their highest increase since May 2007.

"An improving housing market is supportive to economic activity and growth prospects, while modest house price rises also have some benefits, especially when they are occurring in areas where house prices are still substantially below their peak 2007 levels and a significant number of people are facing negative equity," said Howard Archer, chief U.K. economist at IHS Global Insight.

(Read more: Charm offensive: Labour promises energy bill freeze)

But, he stressed there was a "mounting danger" that house prices could be boosted significantly by the Help to Buy scheme in particular. On Saturday, Prime Minister David Cameron said the program would be launched three months earlier than planned.

The unexpected announcement saw shares of homebuilders in the U.K. get a boost on Monday morning , with shares of Barratt Development, Taylor Wimpey, Persimmon and Bellway all up over 1.7 percent.

Amid growing concerns about a housing bubble, Osborne last week gave the Bank of England the power to review the housing subsidy annually and recommend toning down its impact.

"It is of vital importance that policymakers closely monitor the situation and are prepared to act quickly and decisively if signs of the housing market overheating become increasingly widespread and pronounced," Archer added.

However, Daniel Solomon, an economist at the Centre for Economics and Business Research, said talk of a housing bubble was premature.

"Government support and an improving economic climate will provide an invigorating shot in the arm for the housing market over the coming years," he said. "This is not a case of houses being built on the sand. The housing market recovery we are seeing rests on firm economic and demographic foundations – at least for now."

Solomon is the author of a report entitled Housing Prospects, published on Monday, which forecasts that house prices will reach a record high in 2013, with the typical U.K. home costing £225,000 ($360,000).

By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop

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