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John Hutton, the Work and Pensions Secretary, will use a speech tomorrow to claim that tens of thousands are losing out in the jobs market to growing numbers of immigrants, many from eastern Europe, even though "opportunities are out there".

Mr Hutton's hardline approach will dismay many backbench Labour MPs, who will fight any move to cut the benefits of long-term claimants of the Jobseeker's Allowance or to introduce any measure of compulsion to seek work before benefits are paid.

Sources close to the minister, however, said his "mind is entirely open" and that he would examine all options in what would in effect be a wide-ranging review of the Welfare State, nine years after Labour took power. His surprise move will be seen as provocative by allies of Gordon Brown, the overwhelming favourite to take over from Tony Blair as Labour leader, who jealously guards swathes of domestic policy.

Mr Hutton, however, has not ruled himself out as a Blairite challenger to the Chancellor when the Prime Minister steps down, should John Reid, the Home Secretary, not join the contest. In a speech at the Institute for Public Policy Research in London, he will claim: "The next challenge we face is to ensure the hard-core of 'can work but won't work' benefit claimants take advantage of the opportunities out there and compete for jobs alongside growing numbers of migrants who arrive in Britain specifically to look for work rather than to settle for the long term."

There are about 900,000 people claiming Jobseeker's Allowance, about 12 per cent of whom have spent six of the past seven years on benefits, according to Government figures.