O'Grady said the Government is blaming the unemployed for not having a job and labelled Work and Pensions secretary Iain Duncan Smith as "out of touch".
The TUC leader was referring to recent proposals by Chancellor George Osborne that the long-term unemployed will have to undertake work placements in return for their benefits.
Speaking at the Conservative party conference on Monday, Osborne said those who had not found work after two years on the existing Work Programme, where contractors are paid a fee to get people into a job, will face a new scheme called 'help-to-work'.
To still qualify for a jobseeker's allowance, unemployed people will have three options: work placements, such as cleaning up litter; daily visits to a job centre; or taking part in compulsory training, such as improving literacy.
Those who breach the rules will lose four weeks' worth of benefits. Anyone who breaks the rules a second time faces losing three months' worth of benefits.
Welfare must be "fair for those who need it and fair for those who pay for it", Osborne told the Conservative conference.
O'Grady said the new scheme will not be able to tell the difference between those cheating the system and those who are already trying their hardest.
"Iain Duncan Smith always wants to blame the unemployed for not having a job, he is too out of touch," said the TUC leader.
"What long-term unemployed people need is proper support and real experience of a paid job, not a one-size-fits-all sanctions regime that cannot tell the difference between fraud and hardship, and too often drives people to food banks."
