Welfare changes meaning people will lose their benefits if they do not look for a job will tackle a current “waste of potential” in the population, the Chancellor has said, though campaigners have accused the Government of punishing people by framing disability as a lifestyle choice.

Jeremy Hunt said he wants to help the sick, disabled and long-term unemployed back into work – accusing Labour of offering compassion through money while Conservatives prefer to give “opportunity”.

Mr Hunt quoted post-pandemic figures of more than seven million adults of working age, excluding students, who are not employed, despite a million vacancies in the economy.

He said while “many can and want to work” the “system makes that too hard”.

The £2.5 billion back-to-work plan had been long-trailed ahead of the autumn statement, with the Treasury announcing last week that free prescriptions and legal aid will be cut off for benefit claimants who are deemed fit to work and do not seek employment, while digital tools will be used to “track” attendance at job fairs and interviews.

Addressing MPs in Parliament on Wednesday, Mr Hunt said: “Every year we sign off over 100,000 people on to benefits with no requirement to look for work because of sickness or disability.

“That waste of potential is wrong economically and wrong morally.”

Mr Hunt said the changes, which will see treatment rather than time off become the default when it comes to sick notes and benefits stopped altogether if people “choose not to engage with the work search process for six months”, will help grow the economy.

He said the work capability assessment will be reformed “to reflect greater flexibility and availability of home-working after the pandemic” and outlined £1.3 billion in spending over the next five years which he said will be focused on helping nearly 700,000 people with health conditions find jobs.

He added: “Over 180,000 more people will be helped through the universal support programme, and nearly 500,000 more people will be offered treatment for mental health conditions and employment support.

“Over the forecast period, the OBR (Office for Budget Responsibility) judge these measures will more than halve the flow of people who are signed off work with no work-search requirements. At the same time, we will provide a further £1.3 billion of funding to offer extra help to the 300,000 people who’ve been unemployed for over a year without any sickness or disability.”

Disability should not be framed as a lifestyle choice when there is a real risk of sanctions pushing people already dealing with a cost-of-living crisis further into poverty this winter

The work capability assessment changes will apply to new claims only, with the reform coming in from 2025 onwards, the Government said.

The Disability Benefits Consortium, a national coalition of more than 100 charities, described the Government’s plan as a “cynical attack on disability benefits (which) will have a devastating impact on those on the lowest incomes”.

Anastasia Berry, policy co-chair of the consortium, said just one in 10 jobs advertised this year has offered home-working as an option, and described access to health and care support, “which could keep people in work for longer, including mental health and social care”, as becoming “increasingly strained”.

United Response, a member of the consortium, said there is “little point forcing people into the wrong job as this will simply lead to a revolving door of staff” and called for “targeted and specialist support” for people “rather than using punitive punishments”.

Its chief executive Tim Cooper said: “Disability should not be framed as a lifestyle choice when there is a real risk of sanctions pushing people already dealing with a cost-of-living crisis further into poverty this winter.”

Mr Hunt’s statement on the change was a “missed opportunity to set out how disabled people can thrive” and “instead, now many will be thinking how they will survive”, said James Taylor from disability equality charity Scope.

He said: “Today the Chancellor doubled down on a plan that will ramp up sanctions and demonises disabled people.”

As part of its back-to-work plan, the Government is also expanding NHS Talking Therapies, which help people with mild and moderate mental health conditions including stress, anxiety and depression.

Ministers said funding would be provided to broaden access to the treatment and increase the number of sessions each person can access.

The move will lead to an estimated 384,000 additional people completing a course of treatment by 2028/29, according to Treasury documents.