David Cameron has defended the decision to slash the welfare bill by £3.2 billion with a two-year benefit freeze which will hit 10 million of the unemployed and working poor.

The Prime Minister insisted that it was "fair" that benefits should go up at the same rate as average salaries, and insisted that the rich are "paying their share" of tax.

He denied that inequality was rising under his premiership, and pointed to measures such as the hike in stamp duty on expensive homes and the crackdown on tax avoidance by tech firms as proof that his Government is spreading the burden of deficit reduction.

The benefit freeze announced by Chancellor George Osborne at the Conservative Party conference in Birmingham yesterday will affect working-age handouts such as child benefit, housing benefit and tax credits, but pensioner, disability and maternity payments will be exempt. More than half of the 10 million households expected to lose out as a result will include someone who is in work.

The Chancellor said permanent spending cuts or tax rises totalling £25 billion were needed to ensure the state deficit is eliminated by the end of the next parliament in 2020. Ruling out tax hikes, he said £13 billion would come from reductions in Whitehall departmental spending and the remaining £12 billion from welfare cuts - including the £3 billion produced by the freeze.

In a round of TV interviews in Birmingham, Mr Cameron told Five News: "What we have done is set out very clearly that we need to save £25 billion and we don't think putting up people's taxes is the right answer, so we have got to have a mixture of paring back departmental expenditure - and we have made £13 billion of cuts there - and it is right to also make some reductions to the welfare budget.

"It will mean that between 2007 and 2017 benefits will have been growing at about the same speed as earnings. I think that's fair. I don't think we should be saying that benefits should go up faster than the earnings of the people paying the taxes to fund those benefits.

"That's a basic issue of fairness."

Asked why he would not instead increase taxes on the rich, Mr Cameron said: "They are paying more tax. If you take the top 1% in our country, they are paying over a quarter of the total take of income tax. We have also put up taxes like stamp duty.

"We are saying that the next £25 billion, which is what needs to be done to get us back into the black, should be reductions in spending rather than increases in taxes. That's the choice we make."

Mr Cameron said that the earlier decision to raise the income tax threshold to £10,500 had saved most lower-income families more than they would lose from the benefit freeze and taken three million out of income tax altogether.

"That's the best way to help hard-working people who aren't on high incomes, to get them out of income tax, to reduce their taxes, rather than anything else."

Asked whether he would personally be willing to pay more tax to help poorer people keep more of their benefits, Mr Cameron said: "It's not about my tax bill. I pay my taxes and I'm proud to pay my taxes. I think people should in our country be proud to pay the proper rates of tax."

Labour's 50p tax rate on the richest individuals, imposed in the dying days of Gordon Brown's premiership, was "not about getting tax out of the better-off, it was a political symbol", said the PM, adding: "I think you should set tax rates to raise revenue, having a top rate of tax that you can attract talent and get people to pay that tax means you raise more money."

Mr Cameron told ITV News: "Inequality has narrowed under this Government compared with Labour. We have put up taxes on rich people in terms of, for example, stamp duty for very expensive homes.

"I am a Conservative and I believe in the rich paying their share of taxes but I believe in setting tax rates to get money out of them rather than to make a political point."

The Prime Minister highlighted yesterday's announcement by Mr Osborne of a crackdown - nicknamed the "Google tax" - on multinational companies using tax avoidance strategies to reduce their liabilities.

He told the BBC: "Yesterday we announced how companies who come to Britain are very welcome here, but we have set a 20% corporation tax rate and they have absolutely got to pay it."

Mr Cameron acknowledged that the benefit freeze "does affect many millions of families, both those out of work and those who are in work".

He told the BBC: "It is only part of what needs to be done and it is accompanied by lifting the tax threshold so that low paid people are helped - three million people under this Government have been taken out of income tax altogether.

Mr Cameron insisted that Britain could not afford to let up on the drive to get the deficit down.

He told ITV News: "When the crash hit Britain so hard and we had that deep recession, our borrowing shot up, and it has shot up to almost unsustainable levels, and genuinely you should fix the roof when the sun is shining and use good years to pay down your levels of debt so that, heaven forbid, if it ever happens again, you can take the shock.

"If you don't do it in the way that I've suggested, I worry that, the next time it happens, it could take Britain over the edge and we have seen with Greece and Portugal and other countries if you really go over that precipice, you have massive swingeing cuts to public services and people's livelihoods and that is a terrible thing.

"So paying down your debts does matter. It matters in your personal life, it matters in business life and it matters for countries too."

And he told the BBC: "Fundamentally, the worst thing that can happen for Britain's families is to ignore the deficit, which is still too big, still adding to our debt and still a drag anchor on our economy.

"We have to deal with it and I think families across Britain understand that."