David Cameron has ordered an end 
to the monopoly enjoyed by the company operating the controversial fitness-to-work tests amid fears too many of its assessments were flawed.

Atos, which carries out the tests on behalf of the UK Government, has also been told to improve the quality of its findings after a damning inquiry found an unacceptable fall in standards.

But the changes did not go far enough for some campaigners who last night urged the Coalition Government to scrap the tests and replace them with a new assessment that was "fit for purpose". They also called for Atos to be fined for each evaluation it gets wrong.

Charities have repeatedly warned that the process – which judges applications for Incapacity Benefit and sickness benefit Employment and Support Allowance (ESA) – was flawed, citing 40% of appeals were successful.

New figures show the appeals process cost the taxpayer more than £66 million.

Part of the problem, it is understood, was that Atos struggled to deal with an unexpectedly high workload. At one point extra sittings of appeal tribunals were set up across the UK, including Scotland, to deal with the backlog.

Downing Street made clear the order to change the system came from the top. A spokesman said: "The Prime Minister is concerned – that's why the department has taken the action it has."

Employment Minister Mark Hoban, who made the announcement, admitted there were problems with the tests, known as Work Capability Assessments, and added: "It's vital we continue to improve the service."

Among the measures announced are retraining for Atos staff. Those who do not meet the required standard will have their work overseen by an auditor until it has improved or be barred from carrying out assessments altogether.

The move follows an urgent audit by the Department for Work and Pensions of 400 assessments. It found an "unacceptable reduction" in the quality of the written reports from Atos.

In a statement, Atos said it was "sorry when we do not meet our own high standards." The company said a "C grade report does not mean the assessment was wrong and there are checks throughout the system so the correct decision on benefit is made by the department".

Richard Hawkes, chief ­executive of disability charity Scope, said the move was "about time". He said that for disabled people it was clear the whole £112m-per-year system was broken.

Mark Lever, chief executive of The National Autistic Society, warned that further outsourcing of the process would not end the "succession of wrong decisions" unless staff were properly trained.

Gillian Guy, of Citizens Advice, called on the government to fine Atos and other providers for every report they get wrong. She added: "Atos's mistakes have brought with them a huge human cost and cost to the taxpayer, so it's good to see the Government taking action."