The Public Accounts Committee (PAC) found that benefits fraud and errors hit record levels in 2020-21, when £8.3bn was overpaid, up from £4.5bn on the previous year.

The committee said that overpayment mistakes now account for 7.5% of the DPW’s benefit expenditure and failing to reclaim overpayments means that ‘billions of taxpayers’ money is almost certainly lost’.

Fraud and errors were rising year-on-year before Covid-19 but the committee said the DWP’s response to the pandemic opened up new weaknesses in its systems allowing both ‘organised criminals and dishonest opportunistic individuals’ to steal from taxpayers.

At the start of the pandemic, the DWP introduced a number of ‘easements’ – relaxing or adapting usual fraud and error controls – to enable it to manage unprecedented new numbers of claims.

DWP warned the committee in evidence in September 2020 that responding to the spike in demand for benefits during the pandemic would increase fraud and error, but the committee said today that the amount of taxpayers’ money being lost is ‘simply unacceptable’.

DWP has been investing in data and intelligence systems and in 3,000 new staff to begin to tackle years of payment errors that had been uncovered even before the pandemic began. But the Public Accounts Committee is sceptical about whether these measures will reduce fraud and error in the benefits system.

Dame Meg Hillier MP, chair of the Public Accounts Committee, said: “Mistaken overpayments now account for 7.5% 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 waking 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. 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.”