Government accused of ‘losing grip’ on benefits system as overpayments hit record £8.3bn

A report has accused the Department for Work and Pensions of losing its grip on fraud and errors within the benefit system, as overpayments hit more than £8bn last year.

The Public Accounts Committee (PAC) said in the report that the level of fraud and error had nearly doubled during the pandemic, increasing overpayments from the previous record high of £4.6bn reported between 2019-20.

Based on evidence provided by DWP, the committee determined that of the £111.4bn the department paid out in benefits during 2020-21, it had overpaid by a new record of £8.3 billion – 7.5 per cent of the department’s budget, excluding state pensions.

Before the pandemic, fraudulent and erroneous benefit payments were already rising year-on-year, but the PAC claims that the government’s response to the pandemic opened up new weaknesses in its systems, which enabled “both organised criminals and dishonest opportunistic individuals” to steal from the taxpayer.

When the pandemic began, DWP introduced a number of “easements” that relaxed or adapted usual fraud and error controls to make it easier to manage the unprecedented volume of new claims being made; over the time universal credit claims surged to 10 times the normal rate.

While the government has maintained that the majority of claims are genuine, the department warned the committee in September 2020 that an increase in fraudulent and erroneous payments would result from surging demand.

The PAC has now said that the amount of taxpayers’ money that has been lost is “simply unacceptable”.

Chair of the committee and Labour MP Dame Meg Hillier said the situation is “real-life walking nightmare for the huge numbers of people affected”.

She claimed the department “appears unequipped to correct years of mistakes” and said that taxpayers “are losing billions because of it”.

To alleviate payment errors and fraud, DWP has invested in data and intelligence systems, alongside 3,000 new staff. Despite this, according to the report the department was unable to demonstrate improvement in 2021-22, and the according to the report, the committee “remains sceptical” about whether this approach will “result in a real and sustained reduction in the levels of fraud and error”.

Dame Hillier said: “Mistaken overpayments now account for 7.5 per cent of DWP’s benefit expenditure. Add to this the huge task of correcting years of underpayment of state pension, and the department’s resources are stretched.

“This is a real-life walking nightmare for the huge numbers of people affected, from the most vulnerable in our society to the full-time working families who still struggle daily to make ends meet.

“The department appears unequipped either to properly administer our labyrinthine benefits system or detect and correct years of mistakes across too many of our basic state welfare entitlements, far pre-dating its current woes.

“This situation is untenable and taxpayers – who also include benefit claimants – are losing billions because of it.

She added: “There needs to be a step change in understanding the impact of benefit errors on people’s lives and restoring trust, because as we’ve seen recently with pension underpayments, once a mistake in the system materialises it can take years to resolve.”

In order to achieve a sustained improvement across all benefits payments, the PAC report recommended the DWP set clear and measurable targets and actions for recovering taxpayers’ money that was paid out erroneously or fraudulently.

The PAC also recommended that the DWP report publicly on the levels of fraud and error, the levels of overpayment and underpayment that have been detected, and the amounts that have been recovered or paid out in arrears.

In response to the report, a government spokesperson said: “It is disappointing that the Public Accounts Committee has failed to acknowledge that in the midst of an unprecedented pandemic, we prioritised supporting record numbers of genuine claimants.

“Thanks to this decision, the Universal Credit system stood up to the challenge of the pandemic so people received vital financial support at their time of need.

“We are now taking extensive action to ensure all claims made were genuine. Fraud and error in the benefit system is rare, with 95 per cent of benefits worth more than £200bn paid correctly, and just 0.4 per cent of benefits being paid overpaid due to DWP error.”

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