Critical report by MPs says many claimants are wrongly losing benefits because of 'haphazard' approach to assessment

Jobcentre staff should no longer be given incentives according to how many benefit claimants they get off the dole but instead should be rewarded for how many they get back into employment, according to a critical report published on Tuesday by a committee of MPs.

The work and pensions select committee said claimants were in many cases wrongly losing their benefits and that a "haphazard" approach to assessing claimants meant that individual needs or problems were often misunderstood.

The select committee report claims jobcentre staff refer many claimants for a benefit sanction inappropriately, or "in circumstances in which common sense would dictate that discretion should have been applied".

The committee also said the Department for Work and Pensions (DWP) needed to take urgent steps to monitor the extent of financial hardship caused by claimants losing their benefits – including the collection and publication of data on the number of claimants "signposted" to food aid by jobcentres and the reasons why these claimants were in need of assistance.

The report added that a current government review into sanctions was too limited. The review has been made more urgent by the minister for employment Esther McVey's admission that the number of sanction referrals made by jobcentre advisers is part of a "variety of performance data" used to monitor their work.

Academic research cited in the report found that 19% of all jobseeker's allowance claimants in the period from April 2008 to March 2012 were sanctioned – a total of 1.4 million people.

Sanctioning rates in the year to October 2012 were 4.2% of all jobseeker's allowance claimants per month. For claimants aged 18–24 the rate was 8% per month.

But the latest release of official data, covering the period from the introduction of tougher regimes in late 2012 to June 2013, shows that sanctioning rates have increased further to around 5% each month.

In total 553,000 jobseeker's allowance sanctions were applied, an increase of nearly 11% on the same period in 2011-12. The number of sanctions in the year to 30 June 2013 was around 860,000, the highest number in any 12-month period since statistics began to be published in their present form in April 2000.

The committee challenged claims by DWP ministers that staff were not disciplined for failing to meet targets to get claimants off the dole. It also asked if it was sensible that jobcentre staff should be regarded as having succeeded if jobseeker's allowance claimants simply no longer received benefit.

The committee chairwoman, Dame Ann Begg, said the current DWP incentive system took no account of whether the claimant was "leaving benefit to start a job or for less positive reasons, including being sanctioned or simply transferring to another benefit. We believe this risks JCP [Jobcentre Plus] hitting its targets but missing the point. JCP must be very clearly incentivised to get people into work, not just off benefits."

Begg said: "The processes by which JCP currently establishes claimants' needs are haphazard and prone to missing crucial information about a person's barriers to working, including homelessness and drug dependency. A more thorough and systematic approach to assessing claimants' needs is required."

The all-party select committee said a broader review into benefit sanctions should also investigate whether, and to what extent, the policy was encouraging claimants to engage more actively in jobseeking.

The MPs on the committee said they "strongly believe that a further review is necessary and welcome the minister's commitment to launch a second and separate review into the broader operation of the sanctioning process". The DWP was not able to confirm that it had committed to a separate formal review.

Begg said: "An unprecedented number of claimants were sanctioned in the year to June 2013. Whilst conditionality is a necessary part of the benefit system, jobseekers need to have confidence that the sanctioning regime is being applied appropriately, fairly and proportionately and the government needs to assure itself that sanctioning is achieving its intended objective of incentivising people to seek work."

The report also questions whether the DWP has the resources to carry out its work, pointing out it is subject to large funding cuts at a time when its workload is increasing.

It noted that in future there would be weekly signing on for half of all jobseekers, and daily signing on for a third of claimants. It also noted the introduction under Universal Credit of an "in-work conditionality" regime – meaning people in work can be subject to benefit sanctions if they do not for instance increase their skills to get a better-paid job – widely expected to apply to more than 1 million low-paid Universal Credit claimants.

The DWP was not able to provide any figures to the select committee on the numbers of people that would be attending jobcentres as a result.

Begg said: "The government has no clear idea about how working with both employed and unemployed claimants will affect demand on jobcentres because it has not yet formulated plans to deliver its 'in-work conditionality regime'. It must address this as a priority."