Disgraced privateer Atos quit has its controversial work assessment contract early, the government confirmed yesterday.

The firm, which was hired by the Department for Work and Pensions (DWP) to deliver work capability assessments, has been slammed by disability campaigners and unions for allegedly forcing thousands of seriously ill people back to work and causing undue stress and anxiety to legitimate claimants.

The DWP announced that Atos is exiting from its contract to deliver assessments before it is due to end next August.

Ministers stressed that Atos would not receive any compensation from the taxpayer for the early termination of the contract and had made a "substantial" financial settlement to the DWP.

The DWP said last summer that it had identified "significant quality failures" in the written reports produced by Atos following assessments.

An improvement plan was put in place but the government said it was now looking for a new provider to replace Atos.

Disability charity Scope Richard Hawkes chief executive welcomed the news.

He said: "I doubt there's a single disabled person who'll be sorry to hear that Atos will no longer be running the fit-for-work tests."

"We welcome the minister's decision. He now has a real opportunity for the government to review their approach to work capability assessments and ensure that when they appoint a new provider there is a move away from a fundamentally flawed system."

The DWP said that to ensure a smooth transition one national provider will be appointed early next year to take over the contract. In the longer term, however, it said it intended to move to multiple providers to increase competition.

But Public and Commercial Services Union general secretary Mark Serwotka said: "These privatised work assessments are fundamentally flawed and designed to harass vulnerable people and take their benefits away rather than provide support and guidance," he said.

"Doctors, MPs and disabled people all believe the tests should be scrapped, so instead of replacing the failed Atos with another profit-hungry provider the government should bring the work in-house and invest in it properly."

Citizens Advice chief executive Gillian Guy said: "The work capability assessment is broken and innocent people are caught in the middle.

"Atos terminating its contract is not going to result in an overnight improvement in support for sick and disabled people.

"We need urgent root-and-branch reform of this whole system."