The government yesterday announced an independent review of the methods used to assess the work fitness of those claiming incapacity-related benefits.
Disability charities say the current tests are too inflexible – failing to take into account the variation in long-term conditions.
The review will chaired by Professor Malcolm Harrington, who will produce a report by the end of the year in a bid to see if the assessments are fair and transparent .
The announcement came on the day that ministers said they were starting two pilots into reassessing 2.6 million existing incapacity benefit claimants. The government will start reassessing 1,700 claimants in Burnley and Aberdeen from October 2010, and then start – as Labour planned – a national process from February next year.
The assessments will try to determine whether claimants are in fact able to work or whether they need additional support or "unconditional help".
Ministers also announced details of plans for how private companies should compete to run the new multibillion-pound contracts in getting millions of unemployed people into work.
The contracts will in many cases not give private firms any money until they have found work, with the fee rising probably after someone has stayed in work for six months, 12 months or even two years. Emma Harrison, director for A4E , the largest private contractor, said she was delighted that the government was merging the different welfare to work schemes into one work programme, saying it would cut time and the cost of bidding for many small contracts.
She said contractors were in discussion with banks to see if they would provide loans to cover the new regime of payment by results.
The welfare-to-work scheme, potentially costing about £3bn a year, will see providers paid almost exclusively by results and out of savings made from getting people off benefits, and payment would come after delivery.
Chris Grayling, the employment minister, said the reforms would help "break the cycle of benefit dependency that has blighted some communities".
"We expect that our delivery partners should be able to demonstrate the capital strength to take on the risks inherent in an exclusively or heavily outcome-based approach where we seek to deal with the cases of millions of people on out-of-work benefits," government advice says.
An internal government memo seen by the Guardian shows that thousands of Jobcentre staff are expected to be made redundant by next March.
The Public and Commercial Services union says the government's actions were unprecedented as in the past frontline staff had only been let go in an economic boom – rather than in the depths of a recession.
PCS general secretary Mark Serwotka said: "When unemployment is still rising, it's economically absurd to drive even more people out of work and sever the lifeline for thousands and thousands of vulnerable people in our communities."