A disabled peer has accused her own government of behaving like a dishonest insurance company over its treatment of hundreds of thousands of people currently claiming out-of-work disability benefits.

Baroness [Celia] Thomas, a Liberal Democrat, spoke out as she and other peers failed to persuade the coalition to rethink plans to impose a 12-month time limit on disabled people claiming the contributory form of employment and support allowance (ESA).

Although the limit will only affect those in the work-related activity group of ESA – those with less severe barriers to work – campaigners say it will push hundreds of thousands of disabled people further into poverty, with some losing as much as £94 a week.

Some of those losing out will be able to claim income-related ESA, but that entitlement could be denied if their partner earns as little as £7,500 a year.

The Department for Work and Pensions (DWP) began sending letters out in September, warning all contributory ESA claimants that they will lose the benefit next April – when the Welfare Reform Bill is set to become law – if they have been receiving it for more than 12 months, even though the measure is still being debated in Parliament.

Baroness Thomas told fellow peers discussing the bill: “By starting the clock well before Parliament has made its decision on the bill, the government seem to be acting like a private insurance company that changes the rules of someone’s policy after they have made the claim.”

A string of other peers lined up to criticise the proposed 12-month limit.

Lord McKenzie, Labour’s shadow work and pensions spokesman, said the measure was “one of the most controversial and unfair provisions in the bill”, and that 700,000 people would be affected by 2015-16.

He said: “The government’s own assessment is that the average change in income for those who lose out from time limiting is a loss of £52 a week – a staggering amount – with some losing as much as £94 a week.”

Labour wants the DWP to set a limit of at least two years.

But Lord Freud, the Conservative welfare reform minister, said the government believed the decision to limit the benefit to 12 months was the right one.

He said: “The benefits system has to be fair to all those who contribute to it as well as those who draw support from it.”

He said that other benefits could be available for those affected, while ESA should be available to those on lower incomes.

He said the move was “more consistent with the rules for contribution-based jobseeker’s allowance, which has a time limit of six months, while recognising the different nature of ESA recipients and the purpose of the benefit”.

Lord Freud said that Labour’s suggestion of setting a time limit of two years would cost an extra £1.6 billion over five years.

And he said the decision to “start the clock” in September was “another difficult decision that we have had to make to ensure that the economic well-being of our country is protected”.

Although amendments aimed at softening the time limit were withdrawn, peers are expected to reintroduce them during the next stage of the bill in the Lords.

The government also refused to rethink its plans to remove the contributory form of ESA from disabled young people, who can currently claim the benefit from the age of 16.

Baroness Lister said the benefit provided “a sustainable income to support their transition to independent adulthood in particularly difficult circumstances”, for those who have not been able to make national insurance contributions and might not be able to do so in the future.

But Lord Freud said the government wanted to “ensure equal treatment for all groups when establishing entitlement to contributory benefit”, and that about 90 per cent of those young disabled people affected by the measure would receive income-related ESA instead.

Baroness Lister described the government’s proposal – which will save a total of just £10 million over five years – as “a mean-minded little measure”.

Next week (14 and 16 November), peers are due to debate the part of the bill relating to the government’s hugely controversial plans to replace disability living allowance with a new personal independence payment.

News provided by John Pring at www.disabilitynewsservice.com