Mark Hoban said some companies on the government’s £5bn work programme were getting so few people into sustained employment that he would reallocate work from the worst-performing companies to the best. He said: “We have set very clear targets and companies need to hit them to retain their contracts.”

In June Mr Hoban will announce the results of the scheme’s second year. The employment minister said he would carry out “significant market share shift” at that point, reports The FT.

The programme’s rules allow ministers to remove up to 5 per cent of a company’s new referrals, which for some companies would mean losing millions of pounds’ worth of business.

Mr Hoban’s comments indicate that the programme is struggling in key areas and will fuel criticism that some companies are not doing enough to find work for those they are trying to help.

Figures released in November showed the programme helped fewer than half of those it was supposed to during its first year. FT analysis showed a wide variation in how companies have performed, with bigger, more established companies faring better than smaller rivals.

The failure of the programme has triggered tensions between some providers and ministers. Some companies have said they are not being paid enough to do the kind of intensive work needed to find jobs for people who have been unemployed for a long time.

Ministers have responded by pointing out that the companies signed contracts and are expected to deliver the outcomes they promised.

Mr Hoban said: “We are not afraid to use the measures we have to tackle underperformance.”

Failure to hit government targets could prove costly for many of the companies involved, as much of their payment is tied to performance. Mr Hoban said he was willing to let companies go out of business and hand over all their contracts to rivals if such a measure was needed.

“They have got to make the contracts work for them,” Mr Hoban said. “If they thought the government was going to bail them out, they thought wrong.”

Kirsty McHugh, chief executive of the Employment Related Services Association, which represents the providers, said: “It was always intended that work would be moved between providers to ensure the very best deal for the taxpayer. The government’s intention of shifting business therefore comes as no significant surprise to the industry.”

Mr Hoban would not comment on whether companies were likely to hit their second-year targets. But he pointed out that 40 per cent of the successes from the first 13 months came in the final three months, suggesting a sharp improvement as the programme has progressed.

In an effort to make sure the practices of the more successful providers are carried out across the sector, Mr Hoban has also set up a best practice group attended by companies, charities and industry groups. He described the group as the “carrot” to encourage providers to perform well, accompanied by the “stick” of contract removal and possible bankruptcy.