More than £6 billion worth of mistakes were made in payments to benefits and tax credits claimants in a year, a report has found.
The Government must do more to guard against mistakes, the Public Accounts Committee (PAC) warned, as it accused HM Revenue & Customs (HMRC) and the Department for Work & Pensions (DWP) of lacking the ambition to reduce the number of incorrect payments.
High levels of fraud and error were detected within both departments, the committee said, after finding that £4.6 billion was made in overpayments in the year 2013-14, while £1.6 billion which should have gone to claimants was not paid out.
Overpayments result in a cost of around £200 for every UK household each year, the report warned.
While the committee found that both HMRC and DWP have been able to reduce their rates of fraud and error, it said the level of overpayments and underpayments is still not acceptable and accused the departments of lacking the ambition to put an end to the problem.
It said: "Overpayments increase costs to taxpayers and reduce public resources available for other purposes. Underpayments mean households do not get the support they are entitled to."
Committee chairwoman Meg Hillier called for targets to be set in a bid to curb instances where money goes to the wrong people.
She said: "The high levels of fraud and error scrutinised by the Public Accounts Committee are a matter of great concern. Put simply, far too much taxpayers' money has gone where it shouldn't - and too little where it should.
"Legitimate claimants have missed out on vital support running into thousands of millions of pounds. At the same time, overpayments cost every UK household about £200 a year.
"Against this backdrop, the PAC would expect to see Government departments setting firm targets for reducing fraud and error, with a clear focus on making best use of the public pound."
The committee said welfare reforms should reduce instances of incorrect payments but will not solve the problem entirely, adding that it was surprised by the DWP's prediction that fraud and error could grow to £5.8 billion in five years' time.
Among its recommendations the PAC said specific targets must be set to reduce fraud and error, and urged the DWP to look at the impact fines and other penalties are having on people who make incorrect claims, saying it currently has "no evidence regarding the impact of penalties on the behaviour of general claimants or fraud offenders".
Jonathan Isaby, chief executive of the TaxPayers' Alliance, said: "Benefit cheats take money from the neediest in society and from taxpayers, so much more needs to be done to bring down the bill.
"The money that could be saved is about the same as the reductions from the tax credits budget, so tackling fraud and error could ease political headaches as well as the burden on taxpayers."
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