The Department for Work and Pensions estimates it overpaid £8.3 billion out of £111.4 billion of benefits other than the state pension in 2020-21.
Bogus Universal Credit claims during the coronavirus pandemic helped to push fraud and error overpayments in the benefits system to record levels last year.
The Department for Work and Pensions (DWP) estimates it overpaid £8.3 billion (7.5%) out of £111.4 billion of benefits other than the state pension in 2020-21, an increase of £3.8 billion since 2019-20.
This is the highest rate since records started in 2005, according to the National Audit Office (NAO).
It said the coronavirus pandemic was the main cause of the increase as checks were relaxed to ensure a record number of new Universal Credit claims could be processed and paid promptly.
The DWP estimated it overpaid £5.5 billion of Universal Credit.
A surge in new claims at the start of the pandemic led to a doubling of the number of people claiming Universal Credit from three million to six million.
Many new claimants had more complex claims, such as self-employed income, which are more vulnerable to fraud, the NAO said.
In responding quickly to the pandemic, the DWP relaxed certain checks to process the surge in claimants on time, the NAO said. The department estimates these factors accounted for £3.8 billion of Universal Credit overpayments.
The DWP also identified several organised criminal attacks during the pandemic, with fraudsters targeting Universal Credit in particular and making claims in other people’s names.
The department is owed £5 billion of overpayments, placing additional strain on its resources and potentially causing uncertainty and hardship to claimants, the spending watchdog said.
Meanwhile, an estimated 132,000 pensioners have been receiving less state pension than they are entitled to due to ongoing failings.
A £1 billion pot has been set aside to reimburse people who have been underpaid their state pension over the past 30 years.
The DWP aims to review all cases and pay pensioners their correct entitlements by the end of 2023. The estimated annual level of fraud and error in the state pension remains lower than for other benefits, the NAO said.
The department expects the level of overpayments, excluding the state pension, to remain significantly higher than normal for some time.
It estimates it will need at least 3,000 additional staff to manage fraud and error in its recovery from the pandemic, to help it tackle a backlog of compliance cases.
The NAO said it recommends the DWP should identify and review all cases where fraud could have occurred when controls were relaxed, ensuring there is clear and prompt communication with claimants about any debt they owe as a result of overpayments.
Action should also be taken against those who sought to fraudulently claim taxpayers’ money, and the department should conduct a lessons learned exercise on its approach to fraud and error during the Covid-19 pandemic, the NAO said.
Gareth Davies head of the NAO, said: “I am concerned that the level of fraud and error in the benefits system continues to increase year on year, now reaching its highest level since records began. This has a real impact on public funds and on those who face deductions to their income due to overpayments.
“I recognise that the pandemic and the resulting surge in the number of claimants has increased DWP’s exposure to fraud and error.
“It must now review all cases that could have been subject to fraud during this time, whilst continuing to progress our past recommendations on how to reduce fraud and error.”