Alistair Darling, the Social Security Secretary, is modernising the industrial injuries scheme, which costs taxpayers pounds 750m a year. He wants companies to meet the cost of future claims by taking out insurance.
The move will provoke a row with business leaders, who already pay pounds 730m a year in compensation and legal costs for injuries found to be their fault.
Despite Tony Blair's strenuous efforts to woo industry, bosses are increasingly worried that the Government is imposing higher costs on companies through the national minimum wage, the EU social chapter of workers rights, greater recognition rights for trade unions and the Working Families' Tax Credit scheme for the low-paid.
Mr Darling is expected to set out his proposals in a consultation document shortly. Legislation could follow in the Parliamentary session starting in November.
He believes the 50-year-old state system was designed for a very different social and industrial climate and wants to better protection for today's workforce.
Mr Darling will argue that a switch to private insurance would encourage employers to adopt good health and safety practice, since those causing few accidents or illnesses would pay lower premiums.
The number of people receiving industrial injuries disablement benefit has risen from 212,000 to 347,000 during the past six years, and the budget has gone from pounds 660m to pounds 750m in two years.
Under his plans, the Government would continue to fund the benefits -worth up to pounds 104.70 a week - to existing claimants, but employers would finance future payments.
The shake-up is backed by the Treasury, keen to reduce the pounds 100bn-a- year welfare budget by more private insurance.
The plan was welcomed last night by Frank Field, who resigned as Minister for Welfare Reform last summer.
"At the moment, taxpayers are paying for employers who ruin people's lives," said Mr Field. "This would only be a burden that business would generate for itself. It could make a real difference to the rate of accidents."
The Trade Union Congress has welcomed Mr Darling's review but is anxious to ensure the changes would not reduce rights of workers to sue employers for work-related accidents or illnesses. It believes this could breach the European Convention on Human Rights.
A confidential TUC document said: "Employers who cause injury or illness should be punished through a range of measures, from custodial sentences in cases such as corporate manslaughter to financial penalties such as fines, punitive and ordinary damages, recovery of NHS and benefit costs, and increased insurance premiums."Reuse content