The Department for Work and Pensions is not analysing benefits data well enough and will struggle to reduce overpayments and underpayments as a result, according to the Public Accounts Committee.

The Committee's "Reducing errors in the benefits system" report, published today, said the DWP estimates that £2.2 billion of overpayments and £1.3 billion of underpayments were made in 2009-10, as a result of administrative errors by its staff and mistakes by customers.

The publication of a joint HM Revenue and Customs and Department for Work and Pensions fraud and error strategy in October 2010, along with additional funding of £425 million over four years to fight the problem, is seen by the Committee as an opportunity to improve the situation.

However, it says the two departments' joint target of a 25 percent reduction in the cost of overpayments from fraud and error by 2015 is "challenging". It says, "Whilst the Committee acknowledges the efforts being made by the DWP, there is still concern that there is not yet a clear plan of action which sets out specific interventions and milestones to monitor progress."

The DWP is said to have made some progress in improving the data it collects to help it understand why errors happen. For instance, the DWP had managed to cut down the number of categories it uses to code errors from over 600 to 60, which has resulted in simpler and better data on the reasons for errors.

To improve its understanding on when errors occur, the Department carried out a systematic review in 2009 of the data recorded for each error code. It estimated that fewer than one in four errors were likely to have occurred when a customer originally applied for the benefit.

Most happen when a customer is required to report a change in their circumstances.

The Department conceded to the Committee that it had not "tortured" the data it collects to develop a full understanding of where and why mistakes happen, and it could make better use of other sources of information. Analysis of calls to internal advice lines, for example, would indicate the types of difficulties that processing staff were experiencing, as well as which local offices were having particular problems.

The Government has set out proposals to replace a number of existing benefits with the Universal Credit. This reform is expected to simplify benefit administration substantially, thereby lessening the scope for mistakes to occur, says the Committee report.

The DWP expects Universal Credit to reduce losses from fraud and error by more than £1 billion per year in the long term. It is not yet clear what proportion of the projected savings is expected to come specifically from reductions in administrative error.

The implementation of Universal Credit is expected to take "some time", given the "radical reengineering" of the system that it will involve, said the Committee.

The DWP plans to introduce the new regime from 2013 onwards, and it could "take up to ten years to implement fully".

Therefore, said the Committee, the introduction of Universal Credit is unlikely to contribute much to the planned 25 percent reduction in fraud and error.