People on benefits need to make "an even greater effort" to get a job, Prime Minister Tony Blair said as he unveiled a report on welfare reforms.
JobCentre will cater for the 'mass market' of jobseekers
He said this extra effort was expected in return for more help being given to help the long-term jobless find work.
David Freud's report suggests private firms and charities give one-to-one help to cut long-term jobless by 1.3m.
He also suggests making single parents look for work once their child turns 12, rather than 16 as at present.
Chancellor Gordon Brown joined Mr Blair - whom he is expected to succeed as prime minister - and Work Secretary John Hutton at the Downing Street launch of Mr Freud's report.
Mr Hutton later told MPs the plan, which he said would now be debated, envisaged a type of public-private partnership, where firms or charities sign contracts to get long-term unemployed into work.
They would put in the initial investment - in training/coaching etc of the claimant - and then receive payments over a period of three years if the person remained in work.
Mr Blair said the future affordability of the welfare state was dependent on getting "even more people off benefit and into work".
He said the goal of getting 80% of the workforce into work "will be very tough to do".
He said: "We are going to provide more help for people who want to get off benefit and into work, most important of all with, by 2010, wraparound childcare from eight (am) to six (pm).
"In return, we need an even greater effort from people on benefit to get back into work."
Mr Freud, a former City banker, says in his report there had to be a cut in the number of people of working age on benefits for which they do not have to be actively seeking work.
He said people on long-term benefits often have low skills and "multiple" disadvantages.
"Such clients need sustained help, through pre-work training, which connects into the early years of their work experience," Mr Freud said.
His report recommended that JobCentre Plus should cater for the mass market of people seeking work, while people who were "harder to help" would be given individually tailored support through private or volunteer groups.
Such private provision - using a public private partnership - would be part of a "multi-billion pound market" and would have a major impact on the nation's finances, he added.
"More important than the financial figures though is the potential to transform hundreds of thousands of people's lives releasing them from deprivation and hopelessness.
"And that in turn would lead to big improvements in the social fabric of our country."
He said it was possible that in future lone parents - for whom "work is an escalator out of poverty" - could have to seek work when their children were younger than 12.
He did not specify how young that could be, but did say that many people envied the Swedish system where the equivalent age limit for children is three.
His report also called for consultation on a huge simplification of the benefits system, including possibly producing just one flat benefit rate for everyone of working age.
Chancellor Gordon Brown said the report was the start of welfare reforms "which I will champion".
He said: "It's through all these measures... that we will achieve our aspiration of not just 80% employment, but a Britain that is well-equipped to meet the economic challenges of the twenty-first century."
Shadow work and pensions secretary Philip Hammond said: "We need to see how the government is proposing to balance the desire to get people into work, because that's good for their kids, and the recognition also that in some circumstances that won't be the right thing for the family."
The Liberal Democrats said the use of the voluntary and private sector to help more people back into employment was welcome, "but this must be properly financed, and include provisions to help those with serious problems such as low skills or mental health problems".
Officials representing tens of thousands of JobCentre Plus workers said they feared moving services from the public sector was "mistaken".
TUC general secretary Brendan Barber said: "Contracting-out is a recipe for lower standards and the exploitation of claimants.
"A much better approach would be to allow Jobcentre Plus managers more flexibility in providing tailored services to help lone parents get jobs, instead of penalising them."
His words were echoed by Mark Serwotka, general secretary of the Public and Commercial Services union, who said: "The government should be investing in the very people who have effectively delivered the New Deal employment programme and allow them to continue reaching out to the long-term unemployed."
Chris Pond, director of the group One Parent Families, told the BBC he thought forcing single parents into work was a bad idea: "Most lone parents with older children are already working. About 70% already have a job. Those who are not working very often have good reasons for not doing so."
Kate Green, chief executive of the Child Poverty Action Group, said policies should not just be about getting people jobs, but getting them the right sort of jobs.