The benefit system in the UK is set for an overhaul, in an effort to get one million sick or disabled people back into work.
Incapacity benefit could be replaced with employment and support allowances from 2008 onwards, if the welfare reform bill is passed.
This change could save £7 billion a year, the Department of Work and Pensions estimates, with claimants classified as able to work given help in applying for jobs.
Those that reject this help will see their benefits cut, with the most heavily disabled exempt from the scheme and offered more money.
The welfare reform bill, published today, also offers more powers to deal with benefit fraud and reforms to the design and implementation of housing benefit.
"For too long people have been written off by the system. This will change," said work and pensions secretary John Hutton.
"We are putting in place more tailored help and support for individuals to help them get back into work. In exchange for this additional help we will be asking for people to engage with us and take the necessary steps to get back into the work place.
"This is not about forcing people back into work where it is not appropriate. We know that some need the extra help and assistance that only the welfare state can provide and they will continue to receive their benefits without conditionality."
Those that are assessed as able to work will be offered a range of help including counselling, advice and training, the bill states.
As well as reforms to incapacity benefits, the bill seeks to clamp down on benefit fraud, strengthening the "two strikes" rule, under which people have their benefits withdrawn if they commit a second benefit offence within five years of their first one.
The bill also contains reforms for housing benefit which will provide for the roll-out of local housing allowance across the private sector. This simplified housing benefit scheme is already being tested in 18 local authority areas.
However, opposition parties were less than convinced about the effectiveness of the legislation.
Danny Alexander, Liberal Democrat welfare reform spokesman, commented: "This bill presented a great opportunity to get millions off incapacity benefit and back into work.
"As it stands this bill sidesteps many of the most difficult issues and gives the government licence to make major changes without full parliamentary scrutiny system for years to come."
Shadow work and pensions secretary Philip Hammond added: "For many people trapped on incapacity benefit it is far too late.
"A robust reform of the welfare system has to have measurable targets and a clear baseline. So far we have had a lack of transparency from the government.
"These reforms must be about helping existing claimants back into work not just about reducing new claimants."