DWP overhaul could see Britons lose £5,000 a year as Labour plans cuts to £65bn sickness benefit bill

Those with mental health conditions may find it particularly difficult to claim benefits under the extensive reforms, which represent the most significant changes to the welfare system in over a decade.

The proposals are being developed by Work and Pensions Secretary Liz Kendall as part of efforts to reform what Labour calls a "broken welfare system" with benefits like Personal Independence Payment (PIP) being in the firing line.

Currently, the UK Government spends an estimated £65billion on sickness benefits, exceeding both the defence budget of £60billion and the £20billion police budget.

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A near-record 2.8 million people are claiming long-term sickness benefits, with mental health and back problems being the most common reasons, according to figures from the DWP.

The cost of support payments for people with disabilities and health conditions is projected to rise dramatically, from £22billion to £35billion by 2029 - a 60 per cent increase.

An analysis in December revealed that sickness benefits are worth £3,000 more annually than a minimum wage job. A Government source told The Times: "The Tories failed on welfare because they failed on work.

"This Labour Government recognises that many sick and disabled people want to work, given the right support, but are unfairly shut out. We will bring forward big reforms that help more people into work, protect the most vulnerable, and boost growth – while putting the benefits bill on a more sustainable footing."

This change would require claimants to begin work preparations and could result in losses of around £5,000 per year, which has caused concern among disability rights campaigners.

Furthermore, the Government is exploring the possibility of scrapping the work capability assessment (WCA), which determines someone's eligibility for incapacity benefits.

This assessment could be aligned more closely with PIP evaluations. Chancellor Rachel Reeves is reportedly seeking to avoid an emergency tax-raising budget in March, with a reform package expected to be finalised within the next fortnight.

The reforms are likely to face significant opposition from MPs on the Left of the Labour party. Kendall is under considerable pressure from the Treasury to identify billions in potential savings.

A DWP spokesman said: "The proposals we'll bring forward will ensure the health and disability benefit system is fit for purpose, fair on the taxpayer and delivers the right support to the right people."

The spokesman added that they would "work closely with disabled people and their organisations and ensure their voices shape any proposals."

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Kendall added: "This is our inheritance from the Conservative government. And the Tories failed on welfare because they failed on work.

We have got almost record numbers of people out of work due to long-term health problems.

"That’s terrible for them. It’s terrible for their living standards. It’s terrible for employers who want to recruit and it’s terrible for the public finances.

"So we need big reforms in the way that we work to get more people into those jobs, which will help bring the benefits bill onto a more sustainable footing.”