Benefit claimants who refuse to have treatment for depression or anxiety face having their state handouts axed, under plans being drawn up by ministers.
The Government has already started pilot schemes to combine mental health treatment with job support.
But ministers are also considering making it mandatory for claimants with treatable mental health problems to have treatment.
Hundreds of thousands of people on Employment and Support Allowance (ESA), the main benefit for ill and disabled people, could be affected by the reforms.
Up to £1.4billion of taxpayers’ money is spent each year on providing ESA to claimants with mental health problems.
According to the Government, an estimated 260,000 claimants, who receive up to £101 per week each in ESA, have mental health issues.
Those seeking to claim the sickness benefits currently undergo mandatory tests by a doctor or healthcare professional to see if they are fit enough to work.
The new pilot schemes will see mental health assessments included in the tests and will offer job support earlier.
The first of four government pilots is being trialled at four job centres – Durham and Tees Valley, Surrey and Sussex, Black Country and Midland Shires.
This will test whether combining talking therapy with job support is more effective.
The Department for Work and Pensions (DWP) said treatment would not be mandatory in the pilot schemes but that remained an “idea” for the future.
Conservative ministers hope to persuade the Lib Dems to take the reforms even further and back making treatment mandatory for claimants with depression or anxiety who could find work.
But any move to scrap benefits for those refusing to seek treatment is likely to be fiercely opposed by campaigners and charities.
A senior Government source said it was “bizarre” that a lot of ESA claimants with treatable mental health problems undergo no treatment whatsoever, according to the Sunday Telegraph.
“These are areas we need to explore. The taxpayer has committed a lot of money but the idea was never to sustain them for years and years on benefit. We think it’s time for a rethink,” the source said.
“At some point something has to be done. Right now it’s an open ended contract.”
The reforms for mandatory treatment would only apply to claimants who are capable of some work in the future.
But Norman Lamb, the Lib Dem health minister, said forcing claimants to have mental health treatment was “not a sensible idea”.
He said: “The idea that you frogmarch someone into therapy with the threat of a loss of benefits simply won’t work.
“You actually need someone to go into therapy willingly.”
A report from the DWP published in January said there were “significant challenges” in helping people with mental health problems back into work.
People on ESA currently receive up to £101.15 a week if they are put in the work-related activity group, where they are helped with training and skills.
Those placed in the ESA support group, because of severe restrictions caused by illness or disability, receive up to £108.15 a week.
The Government says it spends around £13billion a year on ESA and incapacity benefits.
An estimated £1.41 could be saved for every £1 spent on the new mental health treatment, according to Government estimates.
Nearest tube – Elephant & Castle underground station (Northern and Bakerloo lines).
Nearest Railway Station – Elephant & Castle
Buses from Elephant and Castle – ask bus driver for Burgess Park. Bus numbers: 12, 171, 148, 176, 68, 484, 42, 40, 45