500,000 people could lose sick pay

Plans to cut spending on incapacity benefit could mean many face drastically reduced payments.

Nearly 500,000 people on long-term sickness benefit will be forced to return to work or face having their welfare payments cut by a third.

The move is expected to save up to £4bn. The government plans to find economies of at least £16bn from the £196bn welfare budget in the next four years.

Iain Duncan Smith, the Work and Pensions Secretary, expects to save at least £2bn a year through new medical tests for people on incapacity benefit.

Those judged able to work will either move directly into the workplace or be transferred to jobseekers' allowance, which will mean losing a third of their payments. This is equivalent to about £1,500 a year.

Claimants who are judged too sick or disabled to work may have their benefits time-limited to six months or a year. They will also switch to means-tested benefits, with the well-off potentially losing payments altogether. This measure is expected to save a further £2bn.

The Department of Work and Pensions expects that about a quarter of claimants will either move to jobseeker's allowance, go back to work, or switch to lower benefits.

The tests, which will be piloted in Burnley and Aberdeen from today with the aim of a full roll-out next April, have come under fire from mental health groups and disability campaigners.

Douglas Alexander, the Shadow Work and Pensions Secretary, said: "I have offered to work with Iain Duncan Smith to ensure more people are able to get back into work but we will also be scrutinising these proposals to make sure people who cannot work are not unfairly penalised.