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The long-term sick could be forced to find jobs or have their benefits slashed in sweeping welfare reforms, according to reports.
Work and pensions secretary Liz Kendall is also preparing to make it harder for people claiming mental health benefits in the biggest shake-up of the welfare system in a decade.
According to The Times, she is looking to stop the long-term sick from being paid benefits without requirements and is likely to slash financial incentives that can see them paid twice as much as jobseekers.
“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,” a government source told The Times.
“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.”
Ms Kendall has previously blamed the Conservatives for failing to control welfare spending.
She said: “We’re going to get the benefits bill on a more sustainable course – and it has to be, we cannot accept these costs of failure, failure for individuals, failure for businesses and failure for the economy.
“But the way to do this is to get more people into work through the reforms that we’re putting in place in our job centres and through reform of the benefit system. And we’ll be bringing forward our green paper on reforming sickness and disability benefits in the spring.”
The £137.4bn welfare cap set by the previous government for 2024-25 is on course to be exceeded by £8.6bn.
Ms Kendall told PA: “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.”
Chancellor Rachel Reeves is keen to ensure she does not have to implement emergency tax rises in the March Budget to meet her fiscal rules after turbulence in the gilt markets and a sharp increase in borrowing costs.
However, she has is under pressure from the Treasury to look for savings and previously said that government departments would be required to find efficiency savings of around 5 per cent of spending.
One area that is understood to be the focus for cuts is the welfare bill.
The number of people claiming universal credit has almost doubled since 2020, from around three million to more than 6 million.
And currently, there are also around 2.8 million people not seeking employment due to ill health, a number which has risen substantially since the Covid-19 pandemic.
The Department for Work and Pensions have been approached for comment.