Disability Living Allowance (DLA) will be renamed Personal Independence Payment (PIP) and a consultation has been launched into its overhaul on a social rather than medical basis.
Under government proposals the new benefit will require claimants to qualify for at least a year to receive payments and focus on their ability to carry out a range of key activities necessary to everyday life.
Individuals claiming PIP will have to qualify for the benefit for a period of six months and be expected to continue to qualify for a further six months before an award can be made.
All claimants, excluding those terminally ill, will also undergo a full assessment along with periodic reviews of all awards.
At present DLA is centred on a person's care and mobility needs which are then used as a proxy for the extra costs faced while allowing people with certain health conditions or impairments to be automatically entitled to specific rates of the benefit without a full assessment.
Personal Independence Payment will consider the impact an individual's impairment or health condition has on their daily life and have two components.
The Mobility component will be based on the individual's ability to get around, while the Daily Living component will be based on their ability to carry out other key activities necessary to participate in everyday life.
The government suggests that in most cases an in-depth analysis of an individual's circumstances through face-to-face meeting with an independent healthcare professional will be necessary, while it is also looking to enable claimants' to manage their health condition or impairment.
The plans have angered charity Disability Alliance UK, which fears cuts are likely to mean over 360,000 disabled people losing DLA across the country and notes that a third of disabled people already live in poverty.
It also highlighted that the Government has proposed axing payments of DLA to disabled people living in care homes, which may result in higher charges to councils to provide lost support or to the NHS for health emergencies.
Neil Coyle, director of policy at Disability Alliance, said Margaret Thatcher recognised that DLA could help disabled people pay for everyday things like heating or specialist equipment.
"But the coalition Government wants to cut 20% of this essential support and risk leaving our most disadvantaged citizens facing deeper poverty and exclusion," he explained.
"The combined effects of the government agenda for DLA risks meaning disabled people are unable to participate, less likely to work and more likely to live in poverty. Disability Alliance also today began consulting on DLA to ensure a thorough investigation of the issues involved.
"Our research will be an in-depth analysis of DLA use, disabled people's needs and potential risks in the Government plans," he added.
Unveiling the plans, Maria Miller MP, Minister for Disabled People, said: "The entire welfare system has grown unwieldy and out of control and we need to make sure that money goes to the right people in the most effective and sustainable way."
"Rather than being a poorly targeted and unsustainable benefit, DLA needs to help disabled people live independently and help meet the cost of the barriers that they face in day-to-day life. Just as we are committed to providing unconditional support to those who are unable to work, we know that work is the best form of welfare for those who are able to do so.
"That's why I want as many disabled people as possible to benefit from employment - it is not acceptable for anyone to be trapped in a cycle of dependency," she added.
