£1.85bn owed by benefits claimants

The cross-party Commons Public Accounts Committee said the DWP needs to "significantly improve" the way it pays benefits and step up efforts to recover overpayments.

Among the 1.6 million debtors are more than 30,000 people who owe more than £10,000 and more than 100,000 people who have four or more different debts. About 8,600 of these owe sums topping £20,000 and their average £30,581 debt would take more than 60 years to repay at the maximum £9.75 a week which can be recouped from people still on benefits.

The report said the DWP has been successful in improving debt recovery procedures, increasing the amount recouped from £180 million in 2005-06 to £281 million in 2008-09. But the size of the total debt was continuing to rise - reaching £1.85 billion by March 31, 2009, an increase of 11% on two years before - because overpayments were still larger than repayments.

The committee warned the situation is likely to get worse as the recession makes people less able to repay money owed.

Income Support claims accounted for more than 70% of all debts. And £9.3 million of overpayments of less than £65 were written off during 2007-08 because they were considered too small to justify the cost of recovering them.

Committee chairman Edward Leigh said: "An immense amount of money, currently £1.85 billion, is owed to the Department for Work and Pensions by claimants who have been paid too much benefit.

"The size of the debt is increasing, moreover, as the amount of overpaid benefit being clawed back is outstripped by the amount referred for recovery action. The current economic malaise is only likely to make worse the rate at which debt can be recovered.

"If the department is to deal with this rising trend in benefit debt, then it has to improve the way it approaches the prevention of debt. It should also review its procedures for validating claims for Income Support, a benefit which is particularly susceptible to big overpayments."

Shadow work and pensions secretary Theresa May said: "Labour need to get a grip. It is unforgivable that while taxpayers are tightening their belts, the Government is racking up more debt through poor administration."