"A big internet campaign that's being run by an organisation that's a front for the Socialist Workers Party." That was how Tory welfare minister Chris Grayling described the revolt against the government's workfare scheme during his appearance on the Today programme.

Reports this morning suggest that Poundland has pulled out of the programme, while Greggs has raised concerns over its involvement. Grayling was unable to confirm which, if any, scheme Poundland had left (indeed, he insisted that "not one single company" had withdrawn) but he conceded that employers were "very jumpy". What began as a revolt against a Tesco job advert which notoriously offered a salary of "JSA + Expenses" has thrown the entire future of the programme into doubt.

The scheme, in brief, attempts to make jobseekers more employable by offering them "work experience" with companies like the ones above. The programme is voluntary, not least because participants will only be paid expenses for the 25-30 hours they work a week. However, should they pull out of the placement, for whatever reason, after more than a week has elapsed, they could lose their benefits. It's this draconian sanction that has led a significant number of companies (Argos, Waterstones, Maplin, TK Maxx) to reconsider their involvement. Tesco has already suggested to ministers that "the risk of losing benefits that currently exists should be removed", a demand now echoed by Greggs.

The bakery's chief executive Ken McMeikan told Newsnight:

If after a week or more you decide as an individual that it's not working for you and you leave the scheme, we don't believe at Greggs that the benefits should be taken away. Our view is if they are volunteering to come on this scheme, and for whatever reason they come off, then they go back onto benefits.

If the government wants the scheme to survive, it's increasingly hard to see how it can avoid backing down. Large companies, for understandable reasons, are uncomfortable with the impression of slave labour created by the threat of benefits removal. And, contrary to Grayling, it isn't only Trotskyists who are troubled by the scheme. The element of compulsion involved (keep working or you'll lose your benefits) offends against basic fairness. Unless ministers concede this point, they could soon have a workfare programme without any work.