Threat to slash dole payments

The Government is planning to remove unemployment benefit from tens of thousands of jobless people aged up to 35 who decline joining job schemes, training programmes or voluntary work.

The move, which will be made clear this week, raises the stakes in Tony Blair's battle to reform the welfare state, and is likely to incense left-wing critics.

Tomorrow sees the beginning of the Government's "New Deal" for the long- term unemployed, under which those aged 18-24 who live in 12 pilot areas will have no chance to opt out of training or voluntary work and still collect benefit.

Andrew Smith, Chief Secretary to the Treasury, has decided to extend the principle to another huge swathe of the unemployed, aged 25-35.

The initiative will be welcomed by modernisers in the party but is likely to anger left-wingers who see the New Deal as an extension of US-style "workfare" schemes.

Mr Smith said yesterday: "The New Deal gateway, providing assessment, career advice and help for basic skills for the young unemployed, has been widely welcomed by business as well as the unemployed.

"It makes sense to use pilots to explore how the approach can be adjusted for those higher up the age range who have been out of work for a year or 18 months.

"I am keen to match training opportunities to areas where employers are reporting skills shortages, like information technology and construction."

The move is a being pursued in parallel with the Government's overall reform of the welfare state, which stresses responsibilities as well as rights.

Attempts to curb benefits for lone parents and the disabled triggered Mr Blair's first sizeable backbench rebellion last year.Ministers are determined to press ahead regardless.

Under plans which come into force tomorrow all those unemployed for more than six months who live in 12 pilot areas will be given four options. They are guaranteed a job which will also give them training; work helping the elderly, sick or handicapped; a post with an environmental task force or up to a year's full-time education or training. Ministers insist there will be "no fifth option", with those who refuse all offers losing benefit, initially for two weeks. If, after that, the young person still declines all offers, benefit will be stopped for a further four weeks - to be repeated indefinitely.

If the claimant has dependants, only a proportion of income support will be deducted. The plans will initially affect 19,000 people aged 18 to 24, but will ultimately be extended to cover up to 120,000 people. Ministers are unsure how long it will take to extend the scheme to the 25-35 age category.

Ministers want to learn from the current programme for 18- to 24-year- olds and adapt it to the older age group. So far the Government has contacted 60,000 employers. In June employers will be offered subsidies of pounds 75 per week for jobs offered to people who have been out of work for two years or more.

Creating jobs and training opportunities costs the Government money in the short-term, although the Treasury hopes the welfare-to-work programme will eventually save billions.

Frank Field, Minister of State at the Department of Social Security, is preparing a green paper on welfare reform aimed at slashing the massive social security bill. It could be published later this month.