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Government Struggling to Recover £1.85bn in Benefits

The government has made overpayments to 1.6 million people through the benefits system and is struggling with debt recovery of £1.85bn that it is owed, a report from a committee of MPs concludes today.

Families on low incomes are being forced into debt to pay back the cash, the Commons spending committee said.

Some 50,000 people owe £5,000-£10,000, 23,000 owe £10,000-£20,000 and 8,600 owe more than £20,000 to the government after mistakes in the payments system.

The most common error is failure to reduce payments after claimants’ earnings increase but the scale of the inefficiency in the system is revealed by the fact that hundreds of thousands of people have experienced more than one mistake.

The report from the public accounts committee is released as the government receives an unexpected pre-election boost this morning as the number of people claiming unemployment benefit posted its biggest fall since 1997.

Ministers will today announce further work placements to help young people into a career.

The rising numbers of people indebted by the benefits system is a result of the government getting better at identifying where people have been overpaid – suggesting that millions has gone unaccounted for in the past.

While the amount of money reclaimed is also increasing, it is not keeping pace with the soaring level of debt identified. People are also increasingly struggling to repay the money in the recession.

In 2007-08 some £9.3m in small overpayments were written off because the amount was too small to spend the money retrieving the cash.

In contrast some 8,600 people face the most serious debts of over £20,000. Ministers are considering selling off some or all of the debt to the private sector, but the MPs on the committee warn that any sale should include safeguards for the welfare of vulnerable debt collection customers to avoid debt collectors or bailiffs cracking down on people who have been unwillingly overpaid.

The department does not have a reliable mechanism for assessing what level of debt recovery repayment people who have been overpaid can afford, leaving the process open to abuse, the report says.

Edward Leigh, the chair of the committee, said: “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. It needs to set targets to reduce the debt owed by claimants with multiple and high-value debts, as well as targets for the difficult process of recovering money from claimants who regularly move on and off benefits.”

Theresa May, the shadow work and pensions secretary, 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. These figures are symptomatic of a benefits system that isn’t working.”

A DWP spokesperson said: “The report recognises that DWP’s debt management operations have improved, with recovery increasing from around £180m in 2005-06 to over £280m in 2008-09. Additionally 97% of the benefits paid out in 2008-09 were paid out correctly.

“Our new task force will address debtors who owe the department over £10,000 and we can take them to court if necessary. However, we accept that there is more we can do and so we will consider the committee’s recommendations carefully.”

Jim Knight, the employment minister, will today unveil the latest 7,000 jobs for 18-24-year-olds under the Future Jobs Fund, which pays employers up to £6,000 to take young people on. The new positions include jobs as sports coaches, youth workers, solar panel installers, and classroom assistants.