Pledge to fix broken welfare system follows new evidence that people are worried about returning to work for fear that benefits will be withdrawn

Britain’s broken welfare system is fuelling the “greatest unemployment challenge of a generation”, ministers have concluded as they draw up a root-and-branch overhaul designed to counter the spiralling numbers deemed too unwell to work.

Rules that force benefit claimants into an “all or nothing” choice between working and being deemed too sick to work are set to be redrawn, the Observer understands. It follows new evidence that thousands of people who want to work are worried about taking steps to return to the workplace out of fear that their benefits will be withdrawn.