The Government today announced that the incapacity benefit system was being abolished in a radical tightening of the welfare system designed to ensure that thousands are taken off “the sick” and back into work.

In a hard-hitting speech to the House of Commons, James Purnell, the Work and Pensions Secretary, said that the reforms were designed to end the idea that there was a choice between benefits and work, adding: "life on benefits is not an option."

In what Mr Purnell claimed was the biggest shake-up of the welfare state since the 1940s, all those on incapacity benefit will be forced to undergo medical tests to determine their capacity to return to employment, and only full-time carers and disabled people "with the greatest needs" will remain exempt from finding work.

Incapacity benefit will itself be abolished all together by 2013 and income support will also be scrapped, with a simplified system of two benefits replacing them: Employment Support Allowance for those with medical problems which limit their ability to work, and JobSeekers’ Allowance for those who are fit to work.

Jobless people who take drugs will be banned from receiving dole money unless they accept treatment, Mr Purnell added, while unemployed drug addicts who lie to get benefits will be forced to repay the money and could face jail.

Lone parents with children aged 7 or more will be expected to seek work, while the long-term unemployed will face US-style "work for dole" programmes requiring them to undertake useful activities to ensure that they make a "fair contribution" in return for state support.

In addition, private companies which win contracts to help people find jobs could be paid from the resulting savings in benefits.

Mr Purnell said that the changes were needed because the welfare state had not kept pace with changes in society, with the "nadir" reached in the 1980s when all conditions were removed from unemployment benefit.

Announcing a system which he proposed would make those on benefits justify and earn their claims, he said: "The longer people claim, the more we will expect in return. At three months and six months, claimants will intensify their job search and have to comply with a back to work action plan."

He added: "We will give our advisers the power to use full-time work as a sanction at any stage of a claim for those who are abusing the system.

"We will improve treatment for those who have a problem with crack cocaine and opiates, but require them to take up that treatment. Work works and it is only fair that we make sure a life on benefits is not an option."

The Welfare Green Paper aims for a record 80 per cent employment rate — up from the current 75 per cent — and makes clear that there will be "no right to a life on benefits" for anyone capable of working.

The initiative had threatened to place Mr Purnell in a difficult situation politically, amid fears that the plans would encounter opposition from some on the Labour Left opposed to any squeeze in the benefits system.

However, this afternoon it appeared that any opposition would be confined primarily to a fringe of serial rebels, with much of the mainstream of the party behind the Government — the plans were drafted by ministers co-operating closely with backbenchers.

The Government has already been assured of support from the Conservatives, with shadow ministers claiming that many of the proposals had been "lifted" from Tory proposals made in January.

"Since these are Conservative proposals, we will certainly support them," Chris Grayling, the Shadow Work and Pensions Secretary, said, in a speech replying to Mr Purnell's proposals.

"I know you will have some difficulties getting them through your own party. Can I assure you we will help you get them through this House even if you have a backbench rebellion to contend with."

Earlier, in an attempt to show clear water between Labour's plans and those of the Tories, Mr Purnell had claimed that his plans were inherently socialist in principle and pledged that Labour would "never, ever" stigmatise the jobless.

"I think that people who see the way incapacity benefit or drug addiction or deep unemployment can scar communities are desperate to turn that round, and when I speak to my colleagues they want a system that provides support for people, but also responsibility," he said.

"What the Tories want to do is to be responsible but not to provide the support. David Cameron wants to get rid of the tax credits which would help people to be lifted out of poverty and to get on. We want to provide both, and that’s an approach which lots of my Labour colleagues wholeheartedly back."

He added: "I’m saying ’support and responsibility’, and if people don’t live up to that expectation ... then of course people can lose their benefits.

"For people who are looking for work, we will be saying to people if they play the system that they will have to work to get their benefits."

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