Fraud and error in the benefit system stands at £3.5bn or 2.1% of total benefit expenditure, latest figures from the Department for Work and Pensions (DWP) show.

Preliminary estimates for fraud and error in 2012/13 show £1.2bn of benefit spending is lost due to fraud, £1.6bn due to claimant error, and £0.7bn due to official error.

The figures show falls in official error covering pension credit and jobseekers allowance to their lowest levels ever. The percentage of benefits overpaid due to official error has fallen to 0.4%.

Last month Universal Credit was launched in Greater Manchester and Cheshire. The DWP expects the new benefit to reduce fraud by £200m a year when rolled out fully.

The DWP says it has increased its work to crack down on benefit fraud over the last 12 months – but points out this investment is not captured by today’s figures.

Minister for Welfare Reform Lord Freud said: "Universal Credit will revolutionise the welfare state and ensure that the unacceptable levels of fraud in the benefit system are reduced considerably.

"The Universal Credit system will be much easier for individuals to understand, less vulnerable to human error, and more difficult for people to play the system.

"But our fraud investigation teams are also continuing their hard work – targeting areas of suspected high fraud, using the latest technology to investigate these criminals and going back over old claims to uncover people trying to swindle the taxpayer."

The DWP says a range of measures have been put in place in the fight against fraud and error, including:

• Investigators are making greater use of Proceeds of Crime Act powers to take fraudsters back to court to confiscate assets, force them to repay stolen benefits or face prison
• Targeted campaigns are focusing on areas of high suspected fraud
• Dedicated teams are checking old claims for potential fraud and error
• New tougher penalties to deter fraudsters now include penalties of up to £2,000 without being taken to court
• Extended loss of benefits for convicted benefit fraudsters for up to three years; an immediate three year loss of benefit for serious organised benefit fraud or identity fraud
• A £50 civil penalty in cases where claimants negligently give incorrect information on their claim or fail to report a change in circumstances which results in an overpayment.

Key findings for the individual benefits that are measured on a continuous basis are that:

4.6%, or £250m, of Income Support expenditure (£5.5bn) was overpaid
4.2%, or £220m, of Jobseeker’s Allowance expenditure (£5.3bn) was overpaid
5.5%, or £420m, of Pension Credit expenditure (£7.6bn) was overpaid
5.3%, or £1,270m, of Housing Benefit expenditure (£23.8bn) was overpaid
1.1%, or £60m, of Income Support expenditure (£5.5bn) was underpaid
0.3%, or £10m, of Jobseeker’s Allowance expenditure (£5.3bn) was underpaid
2.1%, or £160m, of Pension Credit expenditure (£7.6bn) was underpaid
1.3%, or £300m, of Housing Benefit expenditure (£23.8bn) was underpaid.

Anyone with information covering suspected benefit fraud should call the National Benefit Fraud Hotline on 0800 854 440.