The rules for claiming incapacity benefit (IB), which is paid to 2.7 million sick and disabled people, will be overhauled to encourage more claimants to return to work.
At the moment, if former claimants lose their job, or leave it, they return to a lower rate of IB, whose basic rate ranges from £55.90 to £74.15 a week.
The number of those claiming the benefit had risen steadily until 2003, although it fell by 22,000 last year, prompting hopes that the Government had stemmed the increase.
Tony Blair has set a target of helping up to a million people on IB back into work through "firm but fair" reforms to the benefit, which is seen by some claimants as a socially acceptable alternative to jobseekers' allowance.
In other announcements, the Chancellor said he wanted to build on the 40 per cent increase since 1997 in numbers of single parents with jobs by extending the £2,000 first-year bonus paid to lone parents who return to work. Centres will be developed in areas of high unemployment among ethnic minorities where the jobless can pick up vocational qualifications or develop business ideas.
Gordon Brown set out plans for a TUC union academy, offering training courses for workers at all levels, and allocated £65m for a scheme under which workers receive paid time off to learn new skills.
Official figures yesterday showed unemployment increased by 22,000 in the quarter to January and more than one million manufacturing jobs had been lost since Labour came to power. But Mr Brown said a record number of people were in work and as a result social security bills for unemployment had been halved over the past eight years. The Chancellor said he was on track to implement cuts to the Civil Service. More than 12,000 jobs have already been axed and another 7,800 relocated away from London and the South-east.
Derek Simpson, general secretary of Amicus, said: "This is a budget for jobs and job security. Gordon Brown is bending over backwards to make UK industry competitive.
"Employers now need to get on board and invest in training their workforce, research and development and improved productivity."
Following the release of the manufacturing jobs figures, Tony Woodley, general secretary of the Transport and General Workers' Union, said Britain was "suffering industrial carnage". He called on the Government to support industry by promoting "buy British" policies in schools, hospitals and the armed forces.
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