Parents on welfare must make a "financial decision" about whether to have more children as the Government continues to look at introducing benefit caps on how much money they receive.
This warning from George Osborne comes as he is due to unveil plans to cut a further £10 billion from the welfare bill on top of the £18 billion of cuts that are already under way in a bid to balance the books.
The Chancellor admitted the Conservatives are looking at whether it was right that parents on welfare automatically receive extra cash for having more children amid speculation that child benefit, income support or tax credits could be withheld.
"One of the questions we ask is when you are in work and you want to have another child you have to consider the financial cost of that because it is an expensive thing to do, wonderful as it is to have more children," said Mr Osborne.
"When you are on benefits you automatically get extra money when you have a child, so you can be better off. We are just asking the question, does that work? Is that the right value we have in our society?"
From next year there will be a benefit cap to limit the total amount of welfare that a person receives.
This will apply to everyone no matter how many people there are in your family so that no one out of work gets more than the average family gets by going out to work.
Around 1.2 million families are set to effectively lose some or all of their child benefit when the changes come into effect from 7 January 2013.
Sanctions will also see claimants who earn under a certain amount of money each week lose some of their benefits unless they work longer hours, find an additional job or seek higher wages.
It is all part of the Government's plan to reach its target to get debt falling by 2015/16.
The Chancellor insists the economy is "healing", pointing to a reduction in the deficit and a boost in the number of private sector jobs as proof.
However, he rejected claims of hammering the poor and said there would be new taxes on the wealthy in the years ahead.