The government could breach its self-imposed cap on welfare spending as a result of the cost of the main sickness benefit, leaked documents say.
Internal memos suggest Employment and Support Allowance costs are rising and few cost-cutting options are available.
In March, MPs agreed a 2015-16 welfare cap of £119.5bn, excluding the state pension and some unemployment benefits.
Ministers say suggestions the cap might be breached are "outrageous" but Labour says the system is at "crisis point".
'Meltdown'A Department for Work and Pensions (DWP) spokesman said the spending projections were "spurious scenarios" based on no action being taken.
"We've taken action and will ensure we do not breach the welfare cap. Speculation to the contrary is nonsense," he said.
If the limit is breached, ministers will have to explain to Parliament and ask MPs to approve additional spending.
Shadow work and pensions secretary Rachel Reeves said the work capability assessment was "in meltdown", the Universal Credit was "chaos" and that people were being let down.
"It is a catalogue of total failure and threatens huge costs to the taxpayer," she said.
"David Cameron must urgently get a grip of this chaotic department."
Meanwhile, a report by MPs has branded the implementation of another benefit, Personal Independence Payments (PIP), a "fiasco".
PIP is replacing Disability Living Allowance, but the Commons Public Accounts Committee said the reform had been "rushed", with some claims delayed by more than six months.
But Minister for Disabled People Mike Penning said the PAC report was based on "old statistics".
He added: "The NAO [National Audit Office] report published in February acknowledged this reform started on time and on budget, and we have reduced risk by rolling it out in phases."
'Fiscal risk'ESA was introduced in 2008 to replace Incapacity Benefit - intended for people who are unable to work because of sickness or disability.
Claimants undergo tests to see how their illness or disability affects their ability to work before learning whether they are eligible.
The cost of ESA is projected to rise by nearly £13bn between the current financial year and 2018-19, and is "one of the largest fiscal risks currently facing the government".
According to the leaked documents the costs are rising because:
- There is an increased number of claimants, caused by people moving off Jobseeker's Allowance and on to ESA
- This is because ESA has fewer sanctions - when someone's benefit is stopped for misconduct - than Jobseeker's Allowance
- The severity of ESA claimants' illnesses and disabilities has been underestimated - meaning people are staying on the benefit longer than expected
- Problems with the private firm Atos, which has carried out benefit health assessments for the government
- Ministers said the fact more than 700,000 people were waiting for an assessment for ESA was due to Atos, which has agreed to end its contract early
- But the new contractor - due to be appointed in 2015 - is expected to cost roughly three times the £100m annual deal with Atos
Work and Pensions Select Committee chairman Dame Anne Begg told BBC Radio 4's Today programme that the ESA seemed to be doing no better than Incapacity Benefit.
She said: "The big criticism of Incapacity Benefit was that people were put on it and left and nobody reassessed.
"With the ESA, there is constant reassessment, but of course that's expensive and that's putting a burden on the health assessors... in order to keep up with the numbers they have to deal with."
Flagship reformAn independent review of the fitness-to-work tests last year found dissatisfaction among disabled people.
It found there was a "confrontational set up" and highlighted the need to treat people with dignity and respect as a particular area for improvement.
Elsewhere, the government's flagship welfare reform is to be rolled out to more jobcentres from next week.
Universal Credit, which is six different benefits rolled into one, will be expanded in England's North West following a series of delays.
The new benefit is currently available in 10 places.
The government announced in April that it would be rolled out across 90 jobcentres in the North West from June for single people.
From Monday, four more job centres will offer it. The remaining 86 should be ready by the end of the year.
Do you claim Employment and Support Allowance? You can email your experiences to haveyoursay@bbc.co.uk using the subject line 'Welfare'.
If you are willing to be interviewed, please include a photograph of yourself and your full contact details.
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