THE 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 per cent 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, the chairman of the 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, over-payments due to errors by claimants were rising, amounting to about two thirds - £900m - of the benefits wrongly paid out last year. The main source of error was the failure of claimants to report changes in their earnings.

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

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