Radical plans to make the long-term unemployed "work for dole" and force those on disability benefits back to the jobs market have been unveiled on the eve of the crucial Glasgow East by-election.

The proposals, leaked to the media ahead of their launch by the government on Monday, will have a direct effect on at least 11,000 Incapacity Benefit claimants in the Glasgow East seat which also has one of the highest unemployment levels of any Scottish constituency.

The plans include private firms being paid a bounty for each person who is on Job Seekers Allowance for more than a year whom they get back into work. After two years of unemployment, claimants will move to US-style workfare schemes and be expected to turn up every day to sign on for work programmes in exchange for benefits.

The biggest change will come for the 2.6 million people in Britain on Incapacity Benefit who are judged to be unable to work on health or disability grounds.

The scheme, which costs the government £12bn a year in benefits, will be replaced by a new Employment Support Allowance by 2013. Claimants will be expected to undergo medical assessment for their ability to work and will be given personalised support to enable them to enter the jobs market.

Those on benefits who are drug addicts will have to attend treatment courses in exchange for receiving benefits.

The tough proposals from Work and Pensions Secretary James Purnell are an attempt to tackle the scourge of long-term unemployment and poverty but it is unclear how they will play out in Glasgow East.

"It was a brave move to launch a radical reform of the welfare state three days before a key by-election in Glasgow in an area of high welfare dependence," said shadow work and pensions secretary Chris Grayling.

He welcomed the proposals as a copy of Conservative policies and pledged the opposition would back the bill. The only Tory criticism was that the green paper talked of five pilot schemes and consultation on the new welfare system.

LibDem work and pensions spokeswoman Jenny Willott said the green paper ignored vulnerable people and the potential pitfalls of trapping people in poverty. "Half of the adults living in poverty in the UK are in work, largely thanks to the poverty trap Labour has created with the prevalence of means-tested benefits," she said.

Stewart Hosie of the SNP said the proposals were a "half-baked, shambolic and uncosted" effort that would rebound on Labour in the last week of the Glasgow by-election.

From the left, TUC General Secretary Brendan Barber said there are already sufficient sanctions to deal with benefit claimants who cheat the system.

"All the evidence shows the vast majority of the jobless want to work," he said. "With the economy slowing down, and many expecting unemployment to rise, now is not the time to start blaming the victim."