Incapacity benefit (IB) has become the bellwether of the Labour government's ability to reform the welfare system. The Budget announcement that all IB claimants will have mandatory work capability assessments from April 2010 is the strongest signal yet of a radical new agenda. Incapacity benefit, currently paid to 2.6 million people in the UK, has proved singularly unresponsive to the many refinements made to the benefits system to encourage people out of dependency and into work.

Glasgow is the UK's IB blackspot, with 56,000 recipients: one in 10 of the city's population and close to one in five of the population of working age. This stems from the steep loss of manufacturing jobs in the city in the 1980s, when men who were made redundant in their 40s and 50s were often in poor health and transferred from unemployment benefit to IB largely because they had no realistic hope of working again. They are now moving into pensionable age and the numbers on IB are coming down from a high of nearly 2.75 million in 2005. It is more worrying that the level has been kept high by younger people with mental health and addiction problems. People with mild to moderate mental illnesses account for half of those receiving IB in Glasgow, according to Glasgow Works, the agency that has a good record in moving unemployed people into work by training them in the basic skills employers require.

This illustrates serious practical difficulties in requiring everyone on IB to undertake a capability assessment. Many people suffering from mental illness are capable of work, but not all the time. Under the new scheme, they would lose out if they started a job but did not keep it. The principle that people should work if they can is right, but there is a need for a more flexible approach, including part-time working topped up with reduced benefits.

Extending compulsory medical assessments from those under 25 to all IB claimants is a clear signal that the tough reforms recommended by David Freud, a banker commissioned to review welfare benefits by Tony Blair, are now being implemented by an initially sceptical Gordon Brown. They include giving larger contracts to independent providers, who already run employment zones and some New Deals to help people find work. Specialists in this area can offer considerable expertise, but their contracts must be carefully monitored. The government has earmarked savings in the welfare bill for reducing child poverty: they must not be allowed to disappear into the profits of private companies.

The culling of incapacity benefit has been described as the most radical overhaul of the welfare state since Beveridge called for ways of fighting the "five giant evils" of want, disease, ignorance, squalor and idleness in 1942. It is time that the focus was moved to idleness: long-term unemployment is a dispiriting state, while work results in improved mental and physical health, as well as the obvious economic benefits. If those carrots are made sufficiently tempting, the stick can be used sparingly.