The Government is spending more money assessing whether people are fit to work than it is saving in reductions to the benefits bill, a damning official report has revealed

The study by the National Audit Office (NAO) found that the Department for Work and Pensions is handing over £1.6bn over the next three years to private contractors who carry out the controversial health and disability assessments.

But at the same time, the Government’s own financial watchdog has warned that savings in benefits payments are likely to be less than a billion pounds by 2020 as a result of the new tests.

The NAO report also found:

The cost of carrying out each employment and support allowance (ESA) test had risen from £115 to £190 after the controversial outsourcing firm Atos pulled out of its contract to run the tests last year.

Benefit claimants are still waiting for more than six months before they are assessed during which time they are not entitled to full payments.

None of the companies carrying out the tests met the Government’s own quality assessment threshold – with reports including spelling mistakes and unintelligible acronyms.

The report found evidence that ministers set completely unrealistic targets for the number of ESA assessments that could be carried out each year.

As a result, there is a backlog of at least 280,000 new claims while ministers have been forced to suspend plans to carry out periodic reassessments of those already claiming the benefit.

“The Department is paying more for assessments, but providers are still not meeting expected performance levels,” said Amyas Morse, head of the NAO.

“The Department needs providers to complete the planned number of assessments so that it can achieve the significant benefit savings it expects to make over the next few years.” The report also found significant problems with the American outsourcing company Maximus which took over the contract to carry out ESA assessments from Atos.

Only half of all the doctors and nurses hired to carry out the assessments completed their training against a target of 95 per cent, while average staff costs rose from £26,000 in 2014 to £44,000 last year.

Over the summer the company was carrying out just 37,000 face-to-face assessments a month compared with a target of 57,000. It had carried out 10,000 fewer paper assessments than it had promised the Government.

As a result of the NAO report Iain Duncan Smith and senior Department for Work and Pensions officials are likely to be called to explain the failures to the Commons Public Accounts Committee.

Its chair, Meg Hillier, said disabled people and taxpayers in general had been “failed” by the department’s inability to manage the assessments.

“The department’s approach has been unclear, its targets untested and consistently missed and future delivery is under threat,” she said.

“With the annual cost of assessments now expected to rise to a staggering £579m in 2016-17, taxpayers have been left to foot the bill.

“Contracting out the delivery of public services does not absolve the department from its responsibilities to ensure that taxpayers’ money is well spent,” Ms Hillier said. “The department needs to do more to ensure private providers deliver a better deal for sick and disabled people as assessments have a huge impact on their ability to access vital cash to live with dignity.”

Debbie Abrahams, Labour’s shadow minister for disabled people, said the Government was in a “cycle of optimistic targets, contractual underperformance and costly recovery”.

“Too many disabled people have been badly let down by these assessments and this research shows that it’s not only been costly for those who’ve been mistreated, but all taxpayers,” she said.

“It’s yet another example of incompetence from the DWP and a thorough overhaul of the systems is desperately needed.”

A Department for Work and Pensions spokesman said: “We welcome the NAO’s recognition that we have made significant progress to improve contracted-out health and disability assessments. We are determined to support more people into work and provide individuals who can’t with the correct support that they need – the effective assessment of people’s abilities is key to this.”