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Sick and disabled people were underpaid up to £20,000 each in benefits, a damning report by the spending watchdog finds today.

The National Audit Office blasted the Department for Work and Pensions (DWP) for "failing to get a grip" on the scandal as it revealed the average loss was £5,000.

Auditors launched a probe after it emerged around 70,000 claimants had received too little cash when they moved onto Employment and Support Allowance (ESA).

Now a review of 1,000 cases has suggested around 45,000 claimants on the "enhanced disability premium" may be due around £2,500 each.

Another 20,000 entitled to the "severe disability premium" could be owed around £11,500 each, and "a small number of people" could have been underpaid by £20,000.

The government faces an extra benefits bill of up to £830million by 2023 and is assigning 400 staff to spend up to a year identifying back payments.

(Image: PA)

Just identifying the payments, which includes recruiting 245 new staff to plug gaps left by the extra work, will cost £14million.

NAO chief Sir Amyas Morse said: "The Department for several years failed to get a proper grip on the problem.

"The Department has now committed to fixing this error by April 2019, but not everyone will be repaid all the money they have missed out on."

As well as the arrears - back to a cut-off date of October 21, 2014 - the Government will face higher ongoing payments due to the corrected claims.

The NAO investigation found the department's process for converting people to ESA from older-style benefits "did not reflect its own legislation".

An internal review concluded that a "stronger grasp" of legal obligations and risks would have supported "better-informed" discussions in 2014.

(Image: AFP)

A second review concluded that finance staff should have been notified about the error more quickly.

MS Society director Genevieve Edwards said: "It’s inexcusable that so many people have been denied so much of what they are rightly entitled to, and that this has been allowed to go on for so long."

Labour’s acting welfare chief Margaret Greenwood accused the government of "utter incompetence”, adding: "The Government must immediately act to ensure those affected receive in full the payments they are legally due."

Ken Butler of campaign group Disability Rights UK said the report showed "a shambolic catalogue of mistakes which have had a massive impact on tens of thousands of disabled people."

A DWP spokesman said: "We're well under way with our plan to identify and repay people affected by this issue, and payments have already started.

"We're committed to ensuring people get what they are entitled to receive as quickly as possible. Everyone who could be affected will be contacted directly by the department."

(Image: Rex Features)

Meanwhile Tory ministers announced yesterday that hundreds of disabled people will benefit from a boost of up to £15,000 in grants to help them at work.

Work and Pensions Secretary Esther McVey said the cap on maximum Access to Work grants will rise from £42,100 to £57,200 a year from April 1.

The grants provides cash payments to help disabled people finding or in work with transport, adaptations and support workers.

The UK Council on Deafness praised what it called the significant rise in the cap.

But campaigners are continuing to argue against the limit, which is subject to a legal challenge.