Benefit fraud costs taxpayers about £2bn a year with fraudulent disability benefit claims amounting to some £500m, the National Audit Office says.

Social Security Minister John Denham says the system "frankly isn't working" (Dur: 5'02'')

It is thought more than 750,000 people are making false claims.

The report comes as the Prime Minister begins his tour of the country to argue for his rethink of the benefits system.

Disabled protestors picket outside the Houses of Parliament

According to the report, about 13% of disability living allowance claims in the past year were excessive.

That is higher than the 11% level of fraud the NAO discovered throughout the benefits system.

Most overpayments to people with disabilities resulted from exaggerated accounts of amounts spent on care or mobility needs, the report said.

BBC Correspondent Mike Donkin reports on Blair's 'welfare roadshow' (Dur: 4'07'')

Spending on benefits for the long-term sick and disabled has doubled since the early 1990s. It is estimated by the Department for Social Security as £23.9bn for the current financial year.

Income support widely abused

Disabled people say they need benefits to pay for living expenses

The audit office summary comes amid reports that the Government will target disability benefit during its reform of the welfare state.

The Social Security Secretary, Harriet Harman, has previously refused to rule out such a move, although she has said the worst-off will not be targeted.

A Green Paper on welfare reform to be published soon shows 30p in every pound of national expenditure goes on welfare benefits and that in total benefit fraud costs £4bn a year.

The NAO Head, Sir John Bourn, said the DSS had improved checks on bogus claimants but widespread fraud remained.

Income support remains the most commonly abused benefit. The new Jobseekers' Allowance also gives cause for concern, he said.

The Benefits Agency estimated Income Support fraud last year had risen to £1.7bn from £1.4bn in 1994, he said.

But Sir John said the fact that 18 million people claimed income support meant errors were unavoidable.

Tackling fraud

The Benefits Agency said it had already saved £828m by weeding out fraudulent claims.

Its Chief Executive, Peter Mathison, said: "We have refined our performance targets to put greater emphasis on accuracy and quality and getting payments right, while still clearing cases quickly enough to get help to those who need it the most."

Tony Blair: benefits are "a dead end for too many people"

The Chairman of the Parliamentary Committee of Public Accounts, Conservative MP David Davis, said fraudsters hurt genuine claimants.

"The fiddlers are bleeding the system," he said. "They steal money from the taxpayer and from those most in need.

"We will want to know what action is being taken and what more could be done to get a grip on the burgeoning levels of fraud and inaccuracy in benefit claims."

The Liberal Democrats warned against using fraud as an excuse to cut benefits.

Their Social Security Spokesman, David Rendel, said: "The issue of fraud should not be an excuse for taking benefits away from people in the greatest need."

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