© National Audit Office 2026

Report on Accounts

Department for Work & Pensions

REPORT

by the Comptroller
and Auditor General

July 2026

The National Audit Office (NAO) scrutinises public spending for Parliament and is independent of government and the civil service. We help Parliament hold government to account and we use our insights to help people who manage and govern public bodies improve public services.

The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. We audit the financial accounts of departments and other public bodies. We also examine and report on the value for money of how public money has been spent.

In 2025, we recognised £2.6 billion of positive financial impacts from our past work through reduced costs, improved service delivery, or other benefits to citizens. This represents about £24 for every pound of net expenditure.

We are the UK’s independent public spending watchdog.

We support Parliament in holding government to account and we help improve public services through our high-quality audits.

Report by the Comptroller and Auditor General
as set out in pages 319 to 332 of the Department for Work & Pensions, Annual Report and Accounts 2025-26,
Session 2026-27, HC 262

Gareth Davies
Comptroller and Auditor General
National Audit Office

9 July 2026

The material featured in this document is subject to National Audit Office (NAO) copyright. The material may be copied or reproduced for non-commercial purposes only, namely reproduction for research, private study or for limited internal circulation within an organisation for the purpose of review.

Copying for non-commercial purposes is subject to the material being accompanied by a sufficient acknowledgement, reproduced accurately, and not being used in a misleading context. To reproduce NAO copyright material for any other use, you must contact copyright@nao.org.uk. Please tell us who you are, the organisation you represent (if any) and how and why you wish to use our material. Please include your full contact details: name, address, telephone number and email.

Please note that the material featured in this document may not be reproduced for commercial gain without the NAO’s express and direct permission and that the NAO reserves its right to pursue copyright infringement proceedings against individuals or companies who reproduce material for commercial gain without our permission.

Links to external websites were valid at the time of publication of this report. The National Audit Office is not responsible for the future validity of the links.

014903 07/26 NAO

This report can be found on the National Audit Office website at www.nao.org.uk

If you need a version of this report in an alternative format for accessibility reasons, or any of the figures in a different format, contact the NAO at enquiries@nao.org.uk

The National Audit Office study team consisted of:

Matthew Atkinson, under the direction of Charlotte Moore.

For further information about the National Audit Office please contact:

National Audit Office
Press Office
157–197 Buckingham Palace Road
Victoria
London
SW1W 9SP

020 7798 7400

www.nao.org.uk

@NAOorguk

Fraud and error in benefit expenditure

Introduction

1 The Department for Work & Pensions (DWP) is responsible for welfare, pensions and child maintenance policy. It is required to pay benefits and State Pension to claimants and pensioners on time and in full, in accordance with legislation and the related regulations.

2 In 2025-26, DWP spent £311.2 billion on benefits and State Pension payments to claimants and pensioners.¹ Of this, £145.8 billion was spent on State Pension, £151.9 billion was on other benefits paid directly by DWP and £13.5 billion was on grants paid by DWP to local authorities, the largest element of which was £12.2 billion for Housing Benefit paid on DWP’s behalf. Benefit and State Pension expenditure represented 97% of DWP’s total operating expenditure of £319.8 billion. The remaining expenditure related to DWP’s running costs such as staff remuneration.

3 This report sets out:

how DWP estimates the levels of fraud and error in benefit expenditure;

the reasons and context for my qualified audit opinion in relation to fraud and error in benefit expenditure;

the estimated levels and causes of fraud and error in the benefit system; and

how I intend to assess fraud and error in my future audits of DWP’s annual financial statements.

How DWP estimates the levels of fraud and error in benefit expenditure

4 DWP sets out how it measures the levels of fraud and error in benefit expenditure on pages 97 to 141 of its Performance Report. The estimates are published annually as National Statistics². DWP estimates fraud and error through direct measurement of five or six benefits each year using a statistical sampling exercise. Where it does not directly measure the rate of fraud and error in a benefit in a given year, DWP rolls forward the rate it used from the previous sampling exercises. For benefits that have never been measured, DWP makes an assumption of the rate, typically using a similar benefit as a proxy. This year, DWP has measured fraud and error in Universal Credit, State Pension, Housing Benefit, Personal Independence Payment (PIP), Pension Credit and Disability Living Allowance. Overall, 91% of 2025-26 benefit expenditure was subject to sampling.

5 DWP reports fraud and error in the benefit system across four categories, three relating to overpayments and one relating to underpayments.

Fraud (overpayment): Fraud is where the claimant has provided inaccurate or incomplete information or failed to report a change in their circumstances and there is a suspicion of fraudulent intent. DWP considers a claimant should reasonably be expected to understand how this affects their entitlement. Estimated to be £6.8 billion in 2025-26.

Claimant Error (overpayment): Claimant Error is where a claimant has provided inaccurate or incomplete information, or failed to report a change in their circumstances, but DWP believes they did not have fraudulent intent. Estimated to be £2.0 billion in 2025-26.

Official Error (overpayment): Official Error is where a benefit was paid incorrectly due to action, delay or a mistaken assessment by DWP, a local authority or HM Revenue & Customs (HMRC). Estimated to be £1.1 billion in 2025-26.

Official Error (underpayment): As above. Estimated to be £1.2 billion in 2025-26.

6 DWP sets out its definition of these categories on page 98 of its Performance Report. I consider expenditure in all four categories to be irregular on the basis that, where payments have been made to an individual who is not entitled to that benefit, or a benefit is paid at a rate that differs from the amount specified in legislation, the overpayment or underpayment does not conform with Parliament’s intentions.

7 Unfulfilled Eligibility, which was estimated to be £3.7 billion in 2025-26, is where a claimant receives a lower value of benefit than the value they are eligible for due to the claimant’s own error. DWP does not include Unfulfilled Eligibility in the fraud and error statistics but reports on it in a separate publication.³ I consider this category of expenditure to be regular, as claimants are not legally entitled to a higher benefit payment until they notify DWP of a change in circumstance or provide evidence to support their entitlement as required in legislation. I therefore exclude unfulfilled eligibility from my qualification.

8 I continue to include Unfulfilled Eligibility in my reporting on the estimated level of fraud and error in benefit expenditure as it is relevant to understanding the overall performance of the benefits system.

The Comptroller and Auditor General’s audit opinion on the regularity of benefit expenditure

My qualified regularity opinion

9 I have qualified my opinion on the regularity of DWP’s 2025-26 financial statements due to the material level of fraud and error in its benefit expenditure – except for expenditure on State Pension, for which the level of fraud and error is significantly lower. This is the 38th year in which the Department’s accounts have been qualified due to material fraud and error.

10 In performing my audit under the Government Resources and Accounts Act 2000, I am required to obtain sufficient evidence to give reasonable assurance that the expenditure and income recorded in the financial statements have been applied for the purposes intended by Parliament and that the financial transactions recorded in the financial statements conform to the authorities that govern them.

11 Legislation specifies the eligibility criteria for each benefit and the method to be used to calculate the amount of benefit to be paid. DWP relies on claimants providing timely and accurate information, particularly when their circumstances change. The complexity of the benefit system can cause confusion and genuine error both for the claimants providing the information, and for DWP and others responsible for processing it. Benefit payments are also susceptible both to deliberate fraud by individuals and to organised crime attacks. Where fraud or error results in the payment of a benefit to an individual who is not entitled to that benefit, or a benefit is paid at a rate that differs from the amount specified in legislation, the overpayment or underpayment does not conform with Parliament’s intentions and is irregular.

My consideration of State Pension in my qualification

12 In reaching my regularity opinion, I consider the rates of irregularity due to fraud and error across each benefit. State Pension payments made in 2025-26 totalled £145.8 billion, of which DWP estimates that it overpaid 0.2% (£230 million) and underpaid 0.3% (£390 million). I continue to regard the combined value of £620 million of irregular payments as immaterial in the context of State Pension expenditure in the accounts. As a result, I exclude State Pension expenditure from my qualified opinion on the account.

The estimated level of fraud and error in benefit expenditure

13 DWP sets out its estimates of the overall level of fraud and error in benefit expenditure on pages 97 to 141 of the Performance Report and note 19 of the financial statements (summarised in Figure 1). Because the rate of overpayments from fraud and error in State Pension remains low, I report the level of fraud and error overpayments in benefit expenditure across all DWP benefits both including and excluding State Pension. This helps to show the trend in fraud and error in most benefits more clearly, because it excludes the continuing impact of the increase in State Pension as a share of all benefit payments that can obscure the trends in other benefits.

Overpayments

14 Excluding State Pension, DWP estimates that it overpaid a total of 6.0% of benefit expenditure in 2025-26, down from 6.2% in 2024-25 (Figure 1). Over the same period, the monetary value of overpayments increased to £9.7 billion from £9.3 billion due to total benefit expenditure used in the fraud and error estimation process, excluding State Pension, increasing to £162.5 billion from £150.2 billion.

15 DWP categorises benefit overpayments into Fraud, Claimant Error, and Official Error using the definitions set out in paragraph 6. The estimated 6.0% (£9.7 billion) of expenditure that was overpaid across all benefits (excluding State Pension) comprised the following.⁴

Fraud accounted for 4.2% (£6.8 billion) (2024-25 4.3%, £6.5 billion).

Claimant Error accounted for 1.1% (£1.8 billion) (2024-25 1.2%, £1.8 billion).

Official Error accounted for 0.6% (£1.0 billion) (2024-25 0.6%, £890 million).

16 DWP has set a new ambition to reduce overpayments resulting from fraud and error to 2.8% by 2028-29. DWP highlights that this represents the lowest cross-welfare overpayment rate since the introduction of Tax Credits in 2003-04, exceeding the historical low level of 3.0% recorded in 2014-15. DWP considers that many of the overpayments previously observed in Tax Credits can now be expected to occur within Universal Credit and so should be included in order to provide a fair comparison. The cross-welfare rate does not represent wholly irregular expenditure – as well as fraud and error, the measure includes in-year Tax Credit overpayments that were part of the design of the Tax Credit system. The cross-welfare rate should not therefore be conflated with the National Statistic on fraud and error in benefit expenditure.

17 I have previously reported my disagreement with DWP’s classification of some types of error as being the responsibility of claimants. Since 2018-19 I have reported that in some instances DWP classifies improperly declared income from other benefits as Claimant Error, even though it knows what other benefits a claimant is receiving from its internal records. It remains my view that these should be classified as Official Error. Across the benefits it measured in 2025-26, DWP estimated that it overpaid £62 million due to a failure to consider income from other benefits. More integrated use of DWP’s data could significantly reduce the level of overpayments due to mis-reported benefit income.

Overpayments of Universal Credit

18 In 2025-26, Universal Credit represented over two-thirds of all estimated overpayments by value (Figure 2). Universal Credit overpayments represented 8.5% of expenditure on this benefit, compared with 9.7% in the previous year. Most of the fall in overpayments was due to reductions in fraud relating to earnings, such as under-declaration of income from self-employment. Overall, Universal Credit overpayments due to all types of fraud decreased to 6.8% from 8.0%.

19 The overpayment rate for Universal Credit is now at its lowest level since it was fully rolled out in 2019-20. Following the decrease in 2025-26, the rate of overpayment for this benefit is at a level that is below that which was estimated immediately before the COVID-19 pandemic. In 2019-20, the overpayment rate for Universal Credit was 9.4%, of which 7.6% was due to fraud. Further reductions will be required if DWP is to achieve its aim of reducing its total welfare overpayment rate to 2.8% by 2028-29.

20 The rate of overpayment for all benefits is affected by the mix of benefits in payment as well as the overpayment rate for each benefit. Universal Credit is the largest benefit by value other than State Pension. Although the overpayment rate for Universal Credit has fallen significantly, this benefit continues to have one of the highest overpayment rates. At the same time, the value of Universal Credit expenditure has risen – to £79.2 billion in 2025-26 (25.7% of benefit expenditure) from £65.3 billion in 2024-25 (22.3% of benefit expenditure) – due to new claimants and the transfer of legacy benefit claimants to Universal Credit. As a result, more of the claimant population is receiving a benefit with a higher error rate. Overall, these factors mean that, although the Universal Credit overpayment rate has decreased by 1.2 percentage points, the overpayment rate across all benefits has decreased by only 0.1 of a percentage point.

Overpayments of other benefits

21 Pension Credit continues to have the highest overpayment rate, at 10% of expenditure on this benefit (10.3% in 2024-25). Over half of these overpayments were caused by claimants remaining abroad for longer than permitted or by under-declaration of capital.⁵

22 Overpayment of PIP increased from 1.3% in 2024-25 to 2.3% in 2025-26. The main reason for the increase was more claimants not reporting an improvement in their condition or a reduction in their needs, when they were required to do so, which caused overpayments of 1.7% of total PIP expenditure in 2025-26, up from 0.8% in 2024-25.

23 Housing Benefit overpayments decreased from 7.2% to 6.2%. The main reason for the decrease was due to reductions in fraud and claimant error relating to capital and earnings/employment.

Underpayments and unfulfilled eligibility

24 DWP estimates that claimants received 1.6% (£4.9 billion) less than they were eligible for in 2025-26, down from 1.7% (£4.9 billion) in 2024-25 (Figure 3).⁶ This comprised the following:

Official Error accounted for £1.2 billion.

Unfulfilled eligibility accounted for £3.7 billion.

Excluding State Pension claimants received 2.7% (£4.5 billion) less than they were eligible for in 2025-26, down from 2.9% (£4.4 billion) in 2024-25. This comprised the following:

Official Error accounted for £0.8 billion.

Unfulfilled eligibility accounted for £3.6 billion.

Unfulfilled eligibility of disability benefits

25 The highest rates of unfulfilled eligibility are for PIP and Disability Living Allowance (DLA). DWP’s estimate of unfulfilled eligibility in 2025-26 was 3.3% (£0.95 billion) and 8.5% (£0.71 billion), respectively. For both benefits, unfulfilled eligibility was due to claimants failing to inform DWP that they needed more help or that their condition had deteriorated.

26 DWP’s statistics suggest that around one-tenth of PIP claimants and one-fifth of DLA claimants are receiving less benefit than they are eligible for. As shown in Figure 4, levels of unfulfilled eligibility are significantly higher for disability benefits measured in 2025-26 (DLA and PIP) than for working-age or retirement benefits.

Overpayments and underpayments due to Official Error

27 Overpayments and underpayments can be caused by Official Error as well as by Claimant Error and Fraud. Official error occurs where a benefit is paid incorrectly due to action, delay or a mistaken assessment by DWP, a local authority or HMRC.

28 Official error overpayments in 2025-26 were £1.1 billion (2024-25 £1.0 billion). They have remained at a consistent rate of 0.3% to 0.4% of benefit expenditure since 2019-20. Official error underpayments have also been consistent across the same period at 0.4% to 0.5%. In 2025-26, underpayments due to Official Error remained at a peak monetary value of £1.2 billion, which was first recorded in 2022-23.

29 In February 2026, the Public Accounts Committee (PAC) said that it expected DWP to take official error as seriously as it does claimant error and fraud, given the large amounts of money involved and the fact that reducing this error is largely within its own control.⁷ It recommended that DWP should set out what action it will take to address the root causes of official error, with the aim of publishing a progress update in its 2025-26 annual report and accounts. DWP’s Fraud, Error and Debt Report within the annual report comments on initiatives that support the reduction of all overpayments including fraud, claimant error and official error. DWP should continue to consider how they are specifically addressing the root causes of official error in line with PAC’s recommendation.

How I plan to assess fraud and error in future audits of DWP’s financial statements

30 My regularity opinion is intended to provide a clear and meaningful basis for holding DWP to account for its use of public funds. This requires setting a level of materiality that appropriately reflects the expectations of Parliament.

31 This is the 38th consecutive year in which I have qualified my regularity opinion on the Department’s accounts due to material levels of fraud and error in benefit expenditure. While this reflects the inherent complexity of the benefits system, it raises the question of whether my historical 1% materiality benchmark continues to provide a meaningful basis for assessing performance.

32 No level of fraud and error is acceptable, but the resources available to reduce it are finite and must be used in a way that delivers value to the taxpayer. I have therefore formed a view that reducing fraud and error to a rate below 1% would be unfeasible under the current benefits system approved by Parliament. In many cases, Parliament has targeted benefits to claimants’ needs and circumstances with the aim of ensuring that resources are used efficiently. For example, on Universal Credit, the design of the system relies on up to date and accurate information from claimants to deliver benefits in a timely and effective way, particularly in the case of vulnerable customers. Whilst this supports a lower-cost system, it can introduce complexity and increase the risk of fraud and error.

33 Achieving a fraud and error rate below 1% would therefore be unlikely without either fundamental changes to the system design or a significantly more intensive and costly control environment, with corresponding implications for service responsiveness and other departmental priorities. At the same time, Parliament has a clear expectation that fraud and error is minimised and that the Department operates a cost-effective control environment.

34 Against this backdrop, I am considering increasing my materiality threshold for assessing regularity of benefit expenditure to a level that more accurately reflects the reduction of fraud and error that is attainable with a cost-effective control environment. This will also include considering whether a more differentiated approach reflecting the varying risk profiles across individual benefits would better support accountability while maintaining appropriate scrutiny. I will consider this as part of the 2026-27 financial statement audit.

35 My judgement will be informed by evidence on whether DWP is achieving sustained reductions in fraud and error, and the steps taken by DWP to strengthen its control environment and to demonstrate the cost effectiveness of its approach, given the resources deployed.

36 My decision on whether to qualify my regularity opinion will continue to be based on the findings of my audit and my assessment of DWP’s performance against these criteria.

Progress in reviewing DWP’s control environment

37 I am working with DWP to understand its assessment of the current control environment for benefit expenditure. I will consider the improvements DWP is making now and in the future, which it considers will deliver its ambitions of a sustained decrease in the rate of fraud and error. Through this work, I will examine the evidence that supports DWP’s assessment of its control framework and the reductions in fraud and error that could be achieved. The findings from this work will inform my judgement of what the approach to setting materiality will be for future audits so that it will act as an appropriate benchmark of whether DWP is doing everything that can be reasonably expected of it to reduce fraud and error to the lowest achievable level for the approved resources deployed. This could result in an increase in the materiality level above the current level of 1%. However, it would not impact my assessment for the current year where the level of fraud and error remains material as further action is needed by the Department to bring it down to an acceptable level as part of a cost-effective regime.

38 Due to the scale and complexity of the benefits system, Universal Credit is being used as a test case to assess the control environment for a key benefit. My team has liaised regularly with departmental officials, who have provided us with a documented assessment of the current control environment along with information on the plans for strengthening controls. Workshops are being held between my team and officials focusing on key loss areas due to fraud and error along with the controls that address them. This work will support an assessment of the feasibility of making sufficient, evidence-based improvements across the benefits system and will inform my choice of materiality level for my regularity opinion on DWP’s 2026-27 financial statements.

1 Audited total expenditure on benefits in 2025-26 was £311.2 billion, as reflected in the Statement of Comprehensive Net Expenditure for the core Department. Note 19 to the accounts sets out estimated total expenditure on benefits of £308.6 billion, which represented the latest available forecast for 2025-26 at the time DWP produced the fraud and error estimates.

2 www.gov.uk/government/statistics/fraud-and-error-in-the-benefit-system-financial-year-ending-fye-2026-estimates/fraud-and-error-in-the-benefit-system-financial-year-ending-fye-2026-estimates. DWP has restated the 2024-25 statistics in the 2025-26 publication due to an error in the State Pension expenditure figure which had been used in the prior publication. This had a small impact of the reported statistics. I have not restated the 2024-25 figures in this report to allow comparability with my prior year report.

3 ‘Unfulfilled eligibility in the benefit system’: www.gov.uk/government/statistics/unfulfilled-eligibility-in-the-benefit-system-financial-year-ending-fye-2026-estimates

4 Figures may not sum due to rounding.

5 For means-tested benefits, claimants are allowed a specified level of capital – savings and other assets – above which the amount of benefit they are entitled to is reduced.

6 DWP no longer includes unfulfilled eligibility in the fraud and error statistics; consequently, cases with both unfulfilled eligibility and another error will no longer have these amounts netted off or capped. This introduces the possibility that these figures, when combined, may include a very small amount of double-counting.

7 Committee of Public Accounts, Tackling fraud and error in benefit expenditure 2024-25, Sixty-sixth Report of Session 2024-26, HC 1231, February 2026.

Design and Production by NAO Communications Team
DP Ref: 014903-001