"We need by our approach to force changes in the attitude of young people to benefits and work," says the document, signed by the Social Security Secretary, Harriet Harman, and Education Minister, Stephen Byers.
Radical reform of the tax and benefits system will be the main feature of Labour's second Budget, which will be in February 1998 - earlier than expected.
"We are looking in particular, as a starting point, at a Working People's Tax Credit," said the Chancellor, Gordon Brown. "That would be money paid to people on low wages. It would be unlike Family Credit in the sense that the more you work ... the more you receive from the tax credit system. It would be the biggest change in the system we have done."
At present, Treasury officials point out, there is a cut-off point beyond which there is no incentive to work because people lose more in benefit than they gain in wages.
However, the Government's "incentive to work" scheme is part of a carrot- and-stick strategy, the leaked document reveals. Ms Harman and Mr Byers say that if the workshy refuse to participate, "penalties must be of clear and sufficient weight either to deter them from rejecting opportunities or to ensure that they reconsider their position and take up the options available".
The document is scathing about the Tories' record on the workshy. They "adopted a piecemeal approach to sanctions across different employment programmes and schemes". This led to "only short periods of time off benefit".
New legislation might be needed to extend the "period of sanction" beyond six months.
Only the broad principles of the "incentive to work" scheme are in place at this stage. Mr Brown has set in train a thorough review of the tax and benefit system, headed by Martin Taylor, chief executive of Barclays Bank.
The options for jobless 18 to 24-year-olds who have been out of work for more than six months will be a job with an employer, work with a voluntary organisation, a place in the Government's new environment task force, or full-time education or training.
Union sources, dismayed by the Harman/Bryers conclusion that no able- bodied person would have "good reason" not to choose one of the four New Deal options, argue that compulsion will be unnecessary if the unemployed are offered genuinely high-quality programmes.Reuse content