Mistakes in paying out benefits claims could cost up to £500m to put right.
The errors identified by the Department for Work and Pensions affect the main sickness benefit, the Employment and Support Allowance (ESA).
Assessors wrongly calculated the income of around 75,000 claimants and the DWP, which discovered the mistakes last December, has contacted about 1,000 people so far.
ESA is paid to about 2.5 million people and Frank Field, chair of the Commons work and pensions select committee, said the problem was on a scale of “historic proportions”.
He said: “I’m still gobsmacked at the size and the nature and the extent and the coverage of people that have been wrongly impoverished by the department getting it wrong.”
The errors affected people who applied for ESA between 2011/12 and 2014/15 – claimants after that date are understood to have had their benefit correctly assessed. On top of money to be paid back, the Treasury will have to pay for the staffing and processing of repayments.
Mistakes began in 2011 when the government started moving benefits recipients onto ESA – which is paid to those with long-term health conditions that are not going to improve. At the time of that migration, an independent expert working for the Department for Work and Pensions, Professor Malcolm Harrington, urged ministers not to proceed until he was certain the system was robust.
Successful applicants for ESA are paid the benefit either on the basis of having made enough National Insurance claims, or because they are on a low income.
In calculating how much income a claimant is entitled to, benefit assessors have to work through a variety of factors, such as what other benefits someone might be on, how much they earn from any work or whether there is any other income coming into the household.
In a statement, the Department for Work and Pensions, said it was aware of the issue and “currently reviewing the historical benefit payments of claimants”.