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The Department for Work and Pensions (DWP) has released new figures revealing that billions of pounds were incorrectly distributed across the benefits system last year. The latest Fraud and Error in the Benefit System report estimates 3.2 per cent of benefit expenditure was overpaid in the financial year ending 2026 (down from 3.3% in 2025), equivalent to £9.9 billion.

A further 0.4 per cent was underpaid, worth £1.2bn. The DWP stated that underpayments featured in the report occur as a result of official error, including mistakes or delays by the department, a local authority or HM Revenue and Customs (HMRC). The DWP provides benefits to approximately 24.3 million people and total benefit expenditure reached £308.6bn in the financial year ending 2026, up from £286.6bn the previous year.

The DWP confirmed that overpayments arise due to fraud, claimant error and official error: The net loss from overpayments, following recoveries, stood at £8.6bn. The DWP confirmed that £0.6bn of Universal Credit, £0.2bn of other DWP benefits and £0.4bn of Housing Benefit was recovered throughout the year, reports the Daily Record.

The report is founded upon a sample of benefit claims scrutinised for accuracy by a specialist team. The claims were sampled between September 2024 and October 2025.

A DWP spokesperson told the Daily Record: "We are determined to tackle fraud and error in the system and at just 3.2 per cent the overall rate is at its lowest since the pandemic.

"Our new Fraud Act gives us tough new powers to go after cheats and claw back taxpayers' money - including accessing new data from banks to help find incorrect payments.

"We've also secured a number of high-profile recent convictions of people committing PIP and Universal Credit fraud - proof our sustained efforts are working."

Pension Credit and PIP stand out

The data reveals contrasting problems across various benefits. Universal Credit remains the largest source of overpayments in monetary terms, Pension Credit carries the highest overpayment rate relative to expenditure, while Personal Independence Payment (PIP) recorded a statistically significant increase in overpayments.

The State Pension continues to register the lowest overpayment rate, yet underpayments remain considerable owing to the scale of spending and persistent National Insurance record complications.

Universal Credit

Universal Credit remained the biggest contributor to overpayments in cash terms. The DWP estimated 8.5 per cent of Universal Credit spending was overpaid in the financial year ending 2026, worth £6.72bn. This represented a fall from 9.5 per cent the previous year, although the DWP noted the change was not statistically significant.

Universal Credit spending rose from £65.3bn to £79.2bn, meaning monetary figures cannot be directly compared across the two years.

The report revealed that 24 in every 100 Universal Credit claims were either overpaid or underpaid, while 21 in every 100 were overpaid. Fraud represented £5.42bn of Universal Credit overpayments, with claimant error accounting for £690m and official error totalling £610m.

The principal drivers of Universal Credit fraud overpayments were earnings and employment, living together rules and capital, which collectively represented more than £6 in every £10 overpaid owing to fraud.

The report stated that earnings and employment fraud, including under declaration of income from work, dropped from 2.2 per cent to 1.5 per cent.

Universal Credit underpayments were estimated at 0.4 per cent, totalling £350m.

State Pension

State Pension had the highest expenditure of any DWP benefit at £146.1bn, representing just under half of total benefit spending.

The State Pension overpayment rate stood at 0.2 per cent, totalling £230m. DWP stated this is consistently the lowest overpayment rate of all DWP benefits.

State Pension underpayments remained at 0.3 per cent, totalling £390m. The report stated that National Insurance contribution errors remained the biggest cause for State Pension underpayments, with problems concerning historic Home Responsibilities Protection comprising £6 in every £10 underpaid owing to contribution errors.

Home Responsibilities Protection existed between 1978 and 2010 to safeguard the State Pension entitlement of people with domestic caring responsibilities.

Pension Credit

Pension Credit had the highest overpayment rate relative to expenditure for the second year running. The overpayment rate stood at 10 per cent, valued at £620m, compared with 10.3 per cent, valued at £610m, the preceding year.

The proportion of Pension Credit claims overpaid rose from 28 in 100 to 33 in 100. DWP stated this was statistically significant and represented the third successive year that Pension Credit had the highest proportion of claims being overpaid.

Nevertheless, the report indicated most Pension Credit overpayments were comparatively modest, with more than half of overpaid claims involving less than £10 per week.

Capital and abroad rules remained the two primary causes of Pension Credit overpayments, representing more than £5 in every £10 overpaid.

Claimant error associated with capital increased from 1.8 per cent to 2.5 per cent. Pension Credit underpayments were calculated at 1.3 per cent, valued at £80m. The principal reason was official error involving additional amounts, predominantly associated with unpaid Extra Amount for Severe Disability.

Personal Independence Payment (PIP)

Personal Independence Payment witnessed one of the most striking changes in this year's report.

The PIP overpayment rate climbed to 2.3 per cent, valued at £660m, from 1.3 per cent, valued at £330m, the preceding year. DWP stated this was a statistically significant increase.

The proportion of PIP claims overpaid also climbed from one in 100 to three in 100.

Functional needs, where claimants failed to report an improvement in their needs, remained the principal cause of PIP overpayments and represented more than £7 in every £10 overpaid on PIP. Fraud was the primary factor driving the increase. PIP fraud overpayments rose to 1.4 per cent, worth £410m, up from 0.4 per cent, worth £100m.

However, the report also draws attention to a separate "Not Reasonably Expected To Know" category. These are instances where a claimant was incorrectly overpaid, yet the DWP concluded they could not reasonably have been expected to know they were required to report the change.

The value of PIP cases excluded from overpayment estimates under this category climbed to £1.03bn, up from £500m the previous year.

PIP underpayments remained at 0.2 per cent, worth £70m. All PIP underpayments recorded in the report were attributable to award determination, meaning an incorrect entitlement decision made by the DWP.

Housing Benefit

Housing Benefit overpayments dropped considerably. The overpayment rate fell to 6.2 per cent, worth £800m, down from 7.2 per cent, worth £1.1bn, the previous year.

The proportion of Housing Benefit claims that were overpaid also decreased from 17 in 100 to 15 in 100.

The DWP attributed the decline primarily to reductions in pension age Housing Benefit overpayments, including non-passported pension age claims.

Capital, referring to the under-declaration of financial assets, remained the leading cause of Housing Benefit overpayments, accounting for more than £4 in every £10 overpaid.

Housing Benefit underpayments were estimated at 0.3 per cent, worth £40m.

Disability Living Allowance

The rate of inaccurate Disability Living Allowance (DLA) claims has more than doubled, rising from four in every 100 claims to nine in every 100, compared with figures last recorded in the financial year ending 2024.

The DLA overpayment rate stood at 0.9 per cent, valued at £70m, while underpayments climbed to 2.3 per cent, amounting to £190m.

The DWP confirmed that all DLA underpayments recorded in this year's report were attributable to award determination.