Prisoners have wrongly been paid tens of millions in benefits they are not entitled to while behind bars, The Mail on Sunday has discovered.  A loophole meant they were able to go on claiming income support and housing benefit while in jail, providing some with a small fortune on their release.  Criminals have been able to get away with the fraud for nearly two decades because benefit officials had no central list telling them who was in prison.

Tory backbencher Philip Davies said last night the situation was an ‘absolute scandal’ and ‘so ludicrous it beggars belief’.

Figures obtained by The Mail on Sunday reveal that the practice has cost the taxpayer £18.6 million in the last four years alone. Over the last 20 years the total could be nearer £100 million.

Last night, the Department for Work and Pensions (DWP) admitted that the fraud has been going on for a long time, but could not confirm how much money had been paid.

The Mail on Sunday has learned that the DWP was first alerted to the problem back in 1994. A spokesman at the time for the then Department of Social Security declared: ‘We are now in a position to stop the fraud.’

But it was not until February this year that the DWP finally joined forces with the Ministry of Justice and set up a system in which details of new prisoners were collated and sent to a central point at the DWP so that benefits can be stopped.

A Freedom of Information request to the DWP last week revealed that between 2007 and 2011, the value of overpayments ‘resulting from customers being in prison’ was £31.7 million.

Yet only £13.1 million has ever been recovered, leaving a shortfall of £18.6 million, or £4.65 million a year.

The true amount fraudulently claimed is likely to be far higher due to housing benefit, which is the biggest sum paid out to the lowest-income claimants, and averages around £84 a week or £4,300 a year.

But the DWP said it had no information on the housing benefit claims as they are dealt with by councils. It was unable to say how many individuals were involved or whether any prisoners had been prosecuted.

Mr Davies said the fraud should have been stopped far earlier.

‘The fact that prisoners are receiving benefits after committing crimes is so ludicrous it beggars belief,’ he said. ‘You’d think they’d be the one group of people who wouldn’t be able to rip off the taxpayer in their situation.’

The official cost of keeping a prisoner in jail is about £37,000 a year, and Mr Davies went on: ‘While law-abiding citizens struggle to get by the best they can, these people have been not only given bed and board at the public expense, but were allowed to fleece the taxpayer too.

‘It’s also concerning that the DWP can’t furnish more details.’

Matthew Sinclair, chief executive of the TaxPayers’ Alliance said: ‘It’s a damning indictment of our broken welfare system that even those locked up behind bars have been carrying on collecting benefits.

‘It’s criminal that successive Governments have left taxpayers footing a bill for tens of millions of pounds to cover the cost of hand-outs that should never have been given to prisoners in the first place.’

A DWP spokeswoman described the old system as ‘a bit clunky’, but denied it relied on the honesty of new prisoners to declare if they were claiming benefits.

It was changed in February after Work and Pensions Secretary Iain Duncan Smith decided a better notification process between the Department of Justice’s National Offender Management Service and the DWP was needed.

She added: ‘Even before the new system was introduced we did not rely on the claimant.

The prison service would send the DWP a form which we would data match and re-direct to the benefit office; more recently a notification of imprisonment, signed by the prisoner, was sent via the prison to the relevant benefit centre.’

In 1994, the Government stated it was only made aware of the illegal claims by a BBC documentary and had started ‘the first sweep of prisoners to ensure that they are not receiving benefit’.

However, probation officers said they had been reporting the fraud since 1988.

In December 2011, David Lewis, 29, from Torquay, Devon, was given a year’s suspended sentence after swindling thousands of pounds by claiming disability benefit under a false name while in jail for fraud.