Fitness-to-work tests to be reformed after criticism
Tests determining whether people are fit to work are to be reformed to offer more support and to take greater account of mental health conditions.
An independent review of the Work Capability Assessment, introduced in 2008, has proposed substantial changes to make it "fairer and more effective".
Campaigners say it is flawed and many decisions are overturned on appeal.
Employment Minister Chris Grayling said the test should be "fair and just" while helping people back to work.
The government wants to cut the number of benefit claimants, as part of its efforts to drive down the welfare bill, by ensuring all those able to work are looking for employment.
In November 2009, there were 2.6 million people of working age on incapacity benefits, costing the state £13.4bn, and ministers want to reassess everyone on such benefits by March 2014.
The Work Capability Assessment, introduced by Labour, is currently being used to assess new claimants and will be used to test everyone from early next year.
It involves a "functional health assessment", denoting an individual's ability to work, rather than the previous "diagnostic medical assessment" by a GP or specialist, focusing on particular conditions.
Mental health campaigners say the test is flawed as it focuses on people's physical capacity to work while the number of test verdicts overturned on appeal shows the system is not working.
An independent review, led by Professor Malcolm Harrington, has called for "substantial" changes to the existing system of assessment.
Mental health experts should be present in all assessment centres, it recommends, to ensure there is a full understanding of the "complexities" of individual conditions.
It also calls for more support for those being assessed, better communication of what the test entails and for tests to be filmed on a pilot basis.
"I have found that the Work Capability Assessment is not working as well as it should be," said Prof Harrington, who will continue in his role as independent reviewer.
"This is not about ripping up the current system and starting all over again. I am proposing a substantial series of recommendations to improve the fairness and effectiveness of the assessment."
Mr Grayling said the government accepted all the review's recommendations, stressing it was in "everybody's interest" that the tests were as fair as possible.
"What we have inherited in this process is something which is too mechanised, too automated, and does not deal enough will individual challenges and circumstances," he told the BBC.
Final decisions would not be solely based on the outcome of the test, he said, as people's medical histories and other factors would be taken into account.
While those unable to work would continue to receive "unconditional support", those deemed fit to work would be "challenged" to do so as he believed people were always better off working than doing nothing.
The report also found there was no evidence that the assessment process was being driven by financial targets - a claim long denied by ministers.
Mental health charity Mind welcomed the review, saying it had "grave concerns" about the current test.
But it said it was vital that the proposed alterations were implemented in full.
"It is clear from this independent review that the assessment in its current form is flawed and that it is not a fair or effective tool to determine whether or not someone is capable of working," Mind's chief executive, Paul Farmer, said.
"Some of the recommendations are 'quick fixes' which should be easy enough to action, but many more will require cultural shifts in the delivery of the assessment, which will take time to fully implement and evaluate," he added.
Prior to the launch of the new system, it was expected that around half of claimants being tested would be declared fit for work.
However, ministers have said only 6% of those tested between October 2008 and February 2010 were considered unable to work either now or in the future.
Government figures published last month suggested 15% of those tested during this period were deemed unable to work now but could do so in the future with appropriate help.
Of the remainder, 39% were deemed fit to work straight away while for another 39%, their test had either not been completed or they had moved off employment and support allowance - the successor to incapacity benefit.
As part of their welfare reform programme, ministers have said those deemed fit to work who do not find employment within a year will be means-tested and could be moved on to jobseeker's allowance.
Critics have said this could lead to up to 200,000 people seeing their benefits cut.