Disabled people and those too sick to work will be the next group feeling the impact of the Government’s drive to reduce the cost of welfare and the numbers out of work.

In a major speech on Monday, the Work and Pensions Secretary Iain Duncan Smith will warn that Employment and Support Allowance (ESA) – the benefit paid to the sick and disabled – needs to be urgently overhauled, because too few ESA claimants are being helped to get work.

He also wants the system for deciding who is eligible for ESA tightened up.

Since he took on responsibility for overhauling the welfare state in 2010, Mr Duncan Smith has seen the number of people on Jobseekers’ Allowance fall by almost 700,000, nearly halving the 2010 figure, but the numbers on ESA have stayed stubbornly high at more than 2.5 million, a fall of about 90,000.

He blames a fault in the way ESA was devised. He is expected to say: “When ESA was introduced in 2008 it was intended to be a short-term benefit, with the vast majority of people being helped to return to work.

“ESA may have been designed with the right intentions, but at its heart lay a fundamental flaw. It is a system that decides you are either capable of work or you are not. This needs to change – things are rarely that simplistic.

“We need to look at the assessment we use for ESA – and I want to look at changing it so that it is better geared towards helping to get people prepared for and into what work they may be capable of, rather than parking them beyond work.”

Mr Duncan Smith is adamant that people who are genuinely too ill to work will still be protected by the welfare state, and he will stress that for many people – particularly those with mental issues – being in work acts as an effective therapy.

But others may fear that he is reacting to pressure to cut the welfare bill by any means that he can.

The Chancellor George Osborne wants the social security budget reduced by £13bn a year by 2020-21.

In his budget speech in July, Mr Osborne announced a £640m cut in welfare payments for people in the work related activity group (WRAG), who are categorised as not fit enough for work, but able to carry out “work related activity”– a move condemned by disability rights campaigners.

According to the Disability News Service, the percentage of people living in households where at least one member was disabled and who were in “absolute poverty” rose from 27 per cent in 2012-13 to 30 per cent in 2013-14, an increase of about a tenth in just one year. It is feared that the drive to reduce the cost of ESA will mean more disabled people living in poverty.

Liz Sayce, chief executive of Disability Rights UK, said that many disabled people would welcome what Mr Duncan Smith is proposing, if it turns out that the reforms genuinely help people to find work – but not if it proved to be simply a way of cutting the welfare budget.

She said: “One of the problems has been that the work programme has totally failed people on ESA. The figures for getting people on ESA into work are very poor. Some people do want to work, with the right kind of support.

“We would like to see radical changes to the work programme in which it was really tailored to individual needs. If there was investment in that, you might see greater numbers of sick and disabled going into work, and that would be great.