2.6m on incapacity benefits face tough 'back to work' tests

All of the 2.6 million people who are claiming incapacity benefits will have to take a rigorous test by April 2013 to see if they are capable of working, a move that will cost the Treasury £30m, the work and pensions secretary, James Purnell, said yesterday in a Commons budget debate.

Purnell also said he had won Treasury backing, in principle, for his department's retention of some of the savings secured through benefit claimants getting work.

The charity Disability Alliance criticised the move to impose the work capability assessments on all such claimants.

The secretary of state said his move, based on recommendations from the government's welfare adviser, David Freud, had left the Conservatives without a distinctive welfare policy, as well as lacking the means of raising the money for its plan that would end the so-called couple penalty in the benefits system.

The Tories had said they would fund the £3bn cost of ending the penalty by ensuring more incapacity benefit claimants did find jobs.

Until now ministers had said that only claimants under 24 and new claimants would take the new test. Purnell told MPs: "For those who play by the rules, we will provide extra support so that they can realise their ambitions. For people who do not play by the rules, there will be clear consequences from their behaviour."

Chris Grayling, the shadow work and pensions secretary, said the government had put up no money to fund the plan.

Ministers insisted they did have an agreement to plough back savings from getting people off benefits and going into work, so making it possible to fund the ambitious plan to use the private sector to help more people gain jobs.

The claim was backed by Adam Sharples, a work and pensions official, in evidence to a select committee on March 3. Sharples told MPs: "We do have agreement with the Treasury that the savings from the Pathways to Work programme, that is, the benefits savings, should be ploughed back into further employment programmes. We will be finalising the details of that arrangement shortly."

Yesterday Purnell struggled to sidestep charges that he was not going to meet the government pledge to halve child poverty by 2010-11. Ministers found £1.7bn over two years in the budget to free an extra 250,000 children from poverty, but experts suggest that without extra money the government will miss its target by 500,000. Purnell said: "We reaffirmed our commitment to it and published a document on how we would do it."

The impact of the budget's tax credits on marginal tax rates came under sharp criticism from the former cabinet minister Stephen Byers. He said that someone earning £65,000 a year with a child less than a year old was now entitled to child tax credit. "I do not think that people on £66,000 a year really want a tax credit; they would rather have a lower level of taxation, full stop," he said. "I understand why the child tax credit is in place - to help, as I thought, families or single parents in poverty or on poverty pay - yet we suddenly find that child tax credit is available to someone on that level of income."

He proposed a radical plan to raise spending on the children who receive free school meals, to the level of those in private school. From 2010, each free-school-meals child entering secondary education should get £8,000 as an educational entitlement, he said. A first-year cost of £270m would account for those children, a total of 90,000 - a cost rising to 3% of the total schools budget over time.