Disability benefits claimants could continue receiving the payments after they return to employment under Government plans to get people back into the workforce.

As part of the reforms, the system used to assess eligibility for the sickness benefits could be scrapped, with ministers describing it as a “perverse incentive to prove how sick you are”, The Times newspaper reported.

It could be replaced with a process that instead asks claimants to demonstrate what work they might be able to take.

Work and Pensions Secretary Mel Stride is looking to revamp the benefits system in an effort to boost employment numbers that have not returned to pre-pandemic levels amid labour shortages.

Rishi Sunak, in the autumn, asked Mr Stride to review issues holding back workforce participation, due to conclude early this year.

The Prime Minister last week said the Government is looking at a range of measures to tackle inactivity, adding: “We need to look at how our welfare system is operating and is it operating in the way that we would like to make sure that we are supporting and incentivising people who can be, to be in work.”

It is understood a white paper is due to be published by the Department for Work and Pensions in the coming months, ahead of the spring budget.

It has yet to be decided when benefits might be halted after a claimant has got a job, The Times reported, with a system similar to the tapering of universal credit as people earn more under consideration.

On overhauling work capability assessments, a Government source told the paper: “It’s very much not the case that we’d be relaxing assessments so you could be perfectly fit and claiming disability benefits, but it will be more about being supported into work and supported to do the things you can do, rather than incentivised to prove how incapable you are”.

The Times also reported that the Treasury is considering offering tax breaks to people for entering jobs.

James Taylor, director of strategy at the disability equality charity Scope said:“It’s good to see the government acknowledge that the benefits system isn’t working for disabled people.

“The work capability assessment isn’t fit for purpose, and high levels of successful appeals against poor decision making continue year after year.

“For too long disabled people have been forced to fight for support in an adversarial system that causes overwhelming anxiety and stress.

“The Government desperately needs to restore trust in the system and commit to wholesale reform.

“Disabled people need a welfare system that works first time and treats them with fairness, dignity and respect.”

The Prime Minister’s official spokesman called the reporting “speculative” and said an upcoming white paper will “shape” the Government’s approach.

“You’ll know that the Prime Minister last week, and the Chancellor at the autumn statement, talked about addressing economic inactivity,” he told reporters.

“He said there were a range of things we are looking at, but obviously it is for the budget to talk about these kinds of things.

“You will know that we will publish the health and disability white paper in the coming months, which follows consultation with disabled people and people with health conditions, which will help shape our approach.”