A radical change in welfare reform which could see a million people on benefits required to work and 600,000 lose hundreds of pounds a month has been described as a “purpose-built gaping chasm” in the system for disabled people.

Analysis presented a day after the Government announced its planned overhaul of the benefits system warned the measures risk either “runaway spending” or sick, low-income people “losing out”.

The reforms, dubbed by the Government as shifting the focus on to what people can do rather than what they cannot, involve the scrapping of the work capability assessment (WCA), leaving only the personal independence payment (PIP).

Chancellor Jeremy Hunt said he wanted to remove barriers to work by ensuring disabled benefit claimants “will always be able to seek work without fear of losing financial support” as he told MPs in the Commons on Wednesday that half the vacancies in the economy could be filled with people who want to work but are inactive due to sickness or disability.

But think tanks have warned that someone who does not have a long-term disability will not necessarily qualify for PIP, meaning that despite being too ill to work they could lose out.

On Thursday, the Institute for Fiscal Studies (IFS) said the Government faces a trade-off in either having numerous people not qualify in future or widening the criteria – which would see more the higher-earning and less severely disabled qualify.

Tom Waters, senior research economist at the IFS, said: “Around one million people may be required to work and around 600,000 could be in line for a roughly £350-per-month loss of income, though in the short run all of them will be protected by transition measures.

“Many of them are likely to apply for PIP to keep that current entitlement, but if their condition doesn’t create higher living costs then many of them won’t be eligible.

“The Government faces a core trade-off.

“It can accept many low-income losers or they can widen the PIP criteria and get more high income, less severely disabled within.

“It has the risk of runaway spending on one hand or having sick low-income people losing out on the other.”

The Government has promised “transitional protection” for existing claimants to “ensure that no one experiences financial loss at the point at which the reform is enacted”.

The reforms will come in by 2026 at the earliest, the Government said, with a rollout for new claims set to be complete within three years from then.

In the immediate aftermath of the Budget, the Resolution Foundation think tank said those to lose out on support in future could include people recovering from surgery, who would currently not qualify for PIP.

James Taylor, director of strategy at disability equality charity Scope, said: “With hundreds of thousands of disabled people potentially at risk of losing benefits from these proposals, this feels more like a purpose-built gaping chasm than a crack in the system.

“The WCA and the PIP assessment are designed to do different things. Whilst it is positive the WCA is being abolished, the level of financial support it can unlock for disabled people does not exist in PIP.

“It’s therefore vital that protections are put in place to make sure this large group of people who get some employment support but not PIP do not lose out.”

The charity had already told the Government it has a “mountain to climb to win back the trust of disabled people”, many of whom, it said, have been subjected to “degrading benefits assessments, cruel sanctions and a dearth of tailored support to find suitable jobs”.

Imran Hussain, director of policy and campaigns at Action for Children, said: “The IFS tables and charts are a clear echo of the fears of many of the families we work with who are worried about the rising costs of living and what the future holds.

“The potentially sweeping plans for disability benefits are naturally making families feel anxious about the prospect of support being taken away.

“If the Government repeats the mistakes of the past and pushes forward changes that are not centred on the help people need and want, then there is a very real risk many will lose out or be pushed towards inappropriate work they’re not in a position to do.”

A Government spokesperson said: “The Health and Disability White Paper commits to removing the financial disincentives that exist within the current system by scrapping the Work Capability Assessment, improving support and the experience for people when applying for and receiving benefits.

“These are the biggest reforms in a decade. That’s why we will take time to carefully consider how best to implement the changes – and give security and certainty to claimants, continuing to engage with disabled people and people with health conditions, and our stakeholders, as our proposals develop, before the reforms are rolled out on a staged basis.

“We will put protections in place to ensure that no one experiences financial loss at the point at which the reform is enacted, while improving our offer of tailored support to help people find and stay in sustainable work.”