Ministers have backed down in a row over paying higher disability benefits to 164,000 people by saying they will not contest a High Court decision.
The judgement ruled changes to benefits discriminate against people with mental health issues.
The case, brought by a women with psychological difficulties, concluded in December and ruled an amendment to the new Personal Independence Payment (PIP) for disabled people “could not be objectively justified”.
The Government introduced regulations in March limiting the amount of support people with psychological distress could receive for making journeys, which the court viewed as “blatantly discriminatory” and in breach of human rights.
The Government previously indicated it would appeal the decision, but newly-appointed DWP secretary Esther McVey ruled out fresh legal action in a written statement to Parliament, meaning thousands of people could be entitled to more benefits.
She said: “My department will now take all steps necessary to implement the judgment in mental health in the best interests of our claimants, working closely with disabled people and key stakeholders over the coming months.
“Although I and my department accept the High Court’s judgment, we do not agree with some of the detail contained therein. Our intention has always been to deliver the policy intent of the original regulations, as approved by Parliament, and to provide the best support to claimants with mental health conditions.”
McVey said the DWP would now go through all affected cases to identify people who may be entitled to claim more in benefits.
“We will then write to those individuals affected, and all payments will be backdated to the effective date in each individual claim,” she added.
“I hope that by making this statement it is clear that the government is committed to improving the lives of people with mental health conditions.”
The changes in March overruled the decision of an independent tribunal.
At the time ministers said following the tribunal’s judgment would affect 164,000 people’s benefits and cost £3.7 billion extra by 2022.
PIP is gradually replacing Disability Living Allowance, with those in receipt of the benefit required to undertake medical reassessment.
Debbie Abrahams, Labour’s shadow work and pensions secretary, said: “The government was wrong to bring in the PIP regulations last year and it was wrong to ignore time and time again the views of the courts.
“Labour supported the initial tribunal judgment and pledged in our manifesto to reverse the PIP regulations.
“Serious questions remain, including; how many people have been adversely affected by the government’s reckless decision to oppose the tribunal’s original judgment? How much public money has been spent on lawyers, trying to defend the indefensible? And how quickly will people with severe mental health conditions receive the support to which they are rightly entitled?
“This is yet more evidence of the duplicity and disarray of the Tories’ social security policies.”
Campaigners argued that people who suffered from “overwhelming psychological distress” were treated less favourably than people with other conditions when their ability to make journeys was assessed.
They said the High Court’s decision was a “significant victory” for people with mental health problems and have urged the government to offer compensation to those affected.
Mark Atkinson, chief executive of disability charity Scope, added: “It’s absolutely right that the Government has accepted the High Court’s ruling over the ‘discriminatory’ changes made to PIP last year.
“This announcement is a victory for the many disabled people who have been unable to access support they are entitled to.
“The regulations introduced last March made crude and unfair distinctions between those with physical impairments and mental health conditions.”