Hutton blames 'Thatcher's legacy' for explosion of incapacity benefit

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Sick and disabled people will receive the same state benefits as the able-bodied jobless unless they make efforts to return to work, the Government announced.

A Green Paper on welfare reform disclosed that the sick and disabled could be paid about £20 a week less than at present unless they took advantage of a £360m package of help, advice and rehabilitation.

The changes will take effect in 2008 when incapacity benefit (IB), currently worth up to £76.45 a week, will be replaced by a more generous employment and support allowance. New claimants could see their payments gradually cut to the level of jobseeker's allowance, currently £56.20 a week, if they are judged capable of some work but refuse to seek it.

John Hutton, the Work and Pensions Secretary, told MPs that the 2.7 million IB claimants would remain on their current benefit level, but could see that reduced if they failed to engage in work-focused interviews and agree an action plan.

Mr Hutton confirmed a target of taking one million people off IB in 10 years to save taxpayers up to £7bn a year. Accusing the Tories of pushing people on to IB to cut the jobless figures, he said: "It is time we brought this shameful legacy of Thatcherism to an end."

Other measures to help the Government ensure an 80 per cent employment rate include getting one million more older people into work by extending the New Deal to the jobless in their fifties, who will face benefit cuts if they decline work or training opportunities.

Some 360,000 lone parents will be wooed off benefit into work through more regular work-based interviews, and a scheme to limit the cost of housing benefit will be extended nationwide.

Although 67 Labour MPs rebelled over the means-testing of IB in 1999, Mr Hutton won the support of most Labour MPs yesterday by putting a positive emphasis on his "carrot and stick" approach and insisting he was not being punitive.

There was little sign of a repeat of the revolt against the Government's schools reforms after the dropping of some draconian ideas demanded by Downing Street - such as a time-limit for claiming IB and "naming and shaming" the GPs who signed off the most claimants. But employment advisers will sit in doctors' surgeries from next month in a trial scheme.

Philip Hammond, the Tory spokesman on welfare, praised Mr Hutton for "grasping the nettle" on IB reform but said the Tories had "heard much of it before" and Labour had done "sweet nothing" since 1997.

Groups representing the disabled welcomed the greater support on offer but expressed concern that a two-tier system might emerge. Lorna Reith, chief executive of the Disability Alliance, said: "The successful 'pathways to work' pilots have shown that disabled people are keen to return to work and can do so if the right help is available."

Mind, the mental health charity, warned that the reforms might force people with mental health problems back to work too soon.