Hilary Benn refused PM's offer of 'poisoned chalice'

Mr Benn, son of Tony Benn, told Mr Blair he wanted to stay in charge of International Development, where he has been spearheading British aid for the disasters abroad including the Pakistan earthquake.

A minister said: "There were rumours about this around the Government when Blunkett left that he had turned it down. I wouldn't blame him. It is a bit of a nightmare." That it is. This month, cuts in invalidity benefits are to be announced, to the fury of Labour MPs, and Mr Benn has quickly become highly respected across the political parties at Westminster.

John Hutton, regarded as an ultra-Blairite, was moved instead from the Cabinet Office to take the post. He will now be widely seen as doing the Prime Minister's bidding over the cuts and changes to state pension rights after the Turner review on 30 November.

Mr Blunkett had an angry exchange of letters with Downing Street about the cuts being demanded in welfare payments a week before he was forced to resign over his involvement with a DNA firm that may bid for Government business.

A leaked Number 10 memorandum by Mr Blair proposed means-testing to cut the benefits paid to middle-class disabled people; naming and shaming doctors who hand out the most sick notes, and giving employers the right of appeal when an employee is signed off sick.

But the issue which caused the furore between Mr Blunkett and Mr Blair was a proposal by the Prime Minister to issue tokens to claimants as part of the £76-a-week which could be spent on training courses. It smacked off the ill-fated voucher scheme for asylum-seekers, which caused a backlash among Labour MPs when Mr Blunkett was Home Secretary.

He fired off an angry reply but Mr Blair remains adamant that 2.6 million incapacity claimants and the soaring bill to support them must be reduced.