17/10/2014 08:00 BST | Updated 17/10/2014 08:59 BST

Iain Duncan Smith's DWP Slammed Over 'Escalating' Losses

LEON NEAL via Getty Images
Britain's Work and Pensions Secretary Iain Duncan Smith addresses delegates on the second day of the annual Conservative Party conference in Birmingham in central England, on September 29, 2014. AFP PHOTO / LEON NEAL (Photo credit should read LEON NEAL/AFP/Getty Images)

Iain Duncan Smith's Department for Work and Pensions has been severely criticised by the Whitehall spending watchdog for failing to curb the "escalating" losses due to fraud and error in the housing benefit system.

The National Audit Office (NAO) said the DWP should have acted sooner to deal with the problem as benefit overpayments ballooned from £980 million in 2010-11 to an estimated £1.4 billion in 2013-14. Around 60% of the losses are never recovered.

While a review of the problem carried out last year resulted in a series of new initiatives to staunch the losses, the NAO warned that the "impact and timing of these changes on levels of fraud error remains uncertain".

Margaret Hodge, chair of the influential Commons public accounts committee which oversees the work of the NAO, described the scale of losses as "staggering", accusing the DWP of a "hands-off approach" to the problem.

The NAO found that while the level of fraud had stabilised, overpayments due to errors by claimants were rising accounting for around two thirds - £900 million - of benefits wrongly paid out last year.

The main source of error was the failure of claimants to report changes in their level of earnings.

While the number of people claiming housing benefit has risen by 5% since 2010-11, the NAO said that the funding provided by DWP to local authorities to administer the system had been cut by 17% over the same period.

By last year, councils were employing 19% fewer fraud investigators compared to 2009, while the number of cases referred for fraud investigations was down by 25%.

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Although housing benefit accounted for 42% of overpayments made across the benefit system as a whole, just £23 million of the £308 million allocated by the DWP to tackling fraud and error went directly to housing benefit projects.

Overall, the NAO said the DWP had been over-reliant on a system of incentives - which enables local authorities to reclaim payments - to encourage them to prevent and identify fraud and error, but the measures had proved "weak".

"The department ultimately bears the financial costs of housing benefit and should have increased its focus on housing benefit fraud and error sooner," the NAO concluded.

"As a result, the management of housing benefit fraud and error has not delivered value for money over the last few years."

Amyas Morse, the head of the NAO, said that the DWP was facing an "escalating" problem. "Housing benefit is a difficult benefit to administer and, against a background of unclear responsibilities and limited investment, it is unsurprising that total overpayments have increased," he said.

"The DWP has recognised the need to do more and has been developing a new strategy. As these initiatives are in the early stages, it is too early to know whether they are working."

Hodge said: "The department's 'out of sight, out of mind' mentality means it has not set performance targets and has limited oversight of local authorities' performance in tackling housing benefit fraud and error.

"With so much taxpayers' money at stake, the department cannot afford to take such a hands-off approach ."

Work and pensions minister Mark Harper said that overall losses in the benefits system due to fraud and error were falling, while the amount being recovered was now higher than it was before 2010, with £1.3 billion recouped last year.

"We know there is more to do to crack down on benefit fraud; this month we have brought in a new detection system that will cross-check all housing benefit claims against up-to-the-minute information on earnings and pension income. We expect the on-going introduction of Universal Credit to cut fraud by a further £1.5 billion."