Fraud and error in the benefits system in Britain have reached record levels, with £8.4 billion overpaid in the last financial year, official figures suggest.

The Department for Work and Pensions (DWP) estimates that 3.9% of benefits spending was overpaid during 2020-21 – the highest rate to date and up from 2.4% in the previous financial year.

Some £6.3 billion of the overpayments are believed to be due to fraud, primarily arising from Universal Credit (UC) claims.

The figures also show an estimated £2.5 billion in underpayments – 1.2% of the total and also the highest rate recorded, up from 1.1% the previous year.

The DWP said levels of fraud and error remain low, with 95% of benefits paid correctly.

We take any abuse of taxpayers’ money very seriously and those who claim benefits they are not entitled to will face criminal prosecution

It took a sample of around 4,000 benefit claims from its records and reviewed whether the claims were correct, classing incorrect claims as either fraud, claimant error or official error.

It said the overpayment rate rose because of a big rise in spending due to the coronavirus pandemic on UC, which had the highest rate of overpayments of all benefits.

Some easements were applied to claims, meaning some verification was not asked for.

Within UC, the fraud overpayment rate rose from 7.6% to 12.8% of the spending for this benefit.

The proportion of UC cases with fraud overpayments remained unchanged, at 17 in 100 cases.

Of the £8.4 billion estimated overpayments, the DWP recovered £800 million.

This takes the net loss from overpayments to £7.6 billion – or 3.6% of benefits expenditure that year.

Earlier this year the Work and Pensions Secretary said tackling fraud in the benefits system will be a “constant battle” as it remains under increased pressure due to the pandemic.

Therese Coffey told the Work and Pensions Committee the department has set up a specialist stolen identity team to help claimants who suspect they have been targeted, which can suspend any debt recovery while the matter is investigated.

It is also aware of organised teams attempting to hijack the identity of claimants.

A DWP spokesman said: “Following an unprecedented year in which the number of Universal Credit claimants doubled as a result of the pandemic, fraud and error in the benefits system remains low with 95% of benefits worth more than £200 billion paid correctly.

“We take any abuse of taxpayers’ money very seriously and those who claim benefits they are not entitled to will face criminal prosecution.

“We also have robust plans in place to recover fraudulent claims and drive fraud and error down to the lowest feasible level.”