The planned announcement of a multimillion-pound government funding package to help the jobless in Glasgow back into work was shelved because it could have influenced the outcome of Thursday's by-election in the city.

The Times has been told by informed sources in Scotland that the decision to postpone the introduction of the package was taken by Sir Gus O'Donnell, the Cabinet Secretary and Whitehall's top civil servant, although this has been denied by aides of both Sir Gus and James Purnell, the Work and Pensions Secretary.

Mr Purnell, as part of his Green Paper on welfare reform outlined in the Commons yesterday, intended to announce that Glasgow was included, along with three areas in England, as one of the recipients of cash for a pathfinder project to give more local control over funds to tackle unemployment and welfare depndency.

The announcement of the Glasgow package, involving tens of millions of pounds, has, however, now had to be put off because of the by-election and the consequent requirements of a “purdah” on spending announcements. It appears certain that the announcement will not be made until the next financial year.

The cash will eventually enable Glasgow City Council and other agencies, including the private sector, to fund local schemes in the city where more than 14,700 people receive jobseeker's allowance, about 60,000 are on some form of incapacity benefit and 5,000 youngsters are not in employment, education or training.

Sources have said that it would mean an unprecedented measure of financial control being handed over to the city to oversee the delivery and provision of training and employment programmes in Glasgow.

The package for Glasgow from the Department for Work and Pensions had been discussed in two recent private meetings in the city between Mr Purnell and Steven Purcell, the leader of Glasgow council.

Mr Purnell is said to have been greatly impressed by initiatives in Glasgow such as the existing “Glasgow Works” public-private partnership initiative which is now scheduled to be expanded when the new cash becomes available. Glasgow Works has a target of reducing the numbers on benefits in the city by approximately 9,000 by a deadline of April next year.

One senior source close to the plan said Glasgow was looking for a greater direct influence on the financial levers governing funding and a consequent reduction in the bureaucracy surrounding the accessing of UK government funding and EU money. One senior government source admitted that the idea was for the announcement to be made with “a fanfare”. He said: “The civil servants told us we could not do it. It is a bit frustrating.”

The Government has already faced claims from both the Conservatives and the Scottish National Party of seeking to “bribe” voters in Glasgow East by announcing the freeze on fuel duty originally scheduled to rise by 2p in October. While these claims were rebutted by ministers, they would have found accusations of voter bribery harder to deflect if they had gone ahead with the Glasgow funding announcement.

Mr Purcell said yesterday that Glasgow was working closely with the UK Government to set up “really local schemes” to get people off benefits and into work. He added: “It's been a great success and I am hopeful of more funding in the near future.” Under the plans announced yesterday by Mr Purnell, unemployed people will be forced to work for their benefits. Incapacity benefit will also be scrapped and those who are jobless for more than two years will have to work full-time in the community.

This shake-up will apply to all

4.5 million people on out-of-work benefits, but is expected to impact most on those on jobseeker's allowance.

Incapacity benefit claimants will all move to the new Employment Support Allowance by 2013, which ministers hope will be regarded, for all but the most disabled people, as a temporary benefit. Someone who has been signed off sick will have a new check by a medical person who is not an individual's normal GP. Drug addicts will be expected to embark on treatment in return for benefits.

Welfare reform dominated matters on the campaign trail in Glasgow East yesterday, with George Osborne, the Conservative Shadow Chancellor, pledging that his party would back the Government's proposals because, he said, they had been inspired by Conservative ideas. Mr Osborne, campaigning with Davena Rankin, the Conservative candidate, added: “We regard the announcement as a victory for the centre right in British politics. It's about getting the private and voluntary sector involved in the delivery of welfare, and it's about being tough with people and saying, ‘We do expect you to work'.”

Ian Robertson, the Liberal Democrat candidate in Glasgow East, pulled out of campaigning in the constituency last night because of a “family emergency”. The party said there would be no further comment.

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