The government wants to cut fraud by half over the next three years

The House of Commons' Public Accounts Committee said the loss, due to error and fraud, was "unacceptable".

Losses from income support and jobseeker's allowance had been cut by 24% since 1997-98, but the rate of reduction has fallen back.

The committee said that the Department for Work and Pensions (DWP) needs to reduce the complexity of the current system, even if it means less well-targeted and "perhaps more expensive" benefits.

'Simpler system needed'

The committee chairman, Conservative MP Edward Leigh, said: "The taxpayer is being ripped off by benefit fraudsters to the tune of £2 billion a year.

"The DWP have lost momentum in reducing this unacceptable level of fraud."

Commenting ahead of the Public Accounts Committee report, called Tackling Benefit Fraud, the Shadow Work and Pensions Secretary David Willetts MP said: "This is a very serious report from the committee £2bn of welfare fraud is an absolute scandal.

"The tragedy of today's benefit system is that billions of pounds goes to people who are not entitled to help while billions more is not claimed by families and pensioners who are entitled to it.

The taxpayer is being ripped off by benefit fraudsters to the tune of £2 billion a year PAC chairman Edward Leigh

"We need a simpler and fairer system otherwise the problems can only get worse."

Work and Pensions Minister Chris Pond said the Government remained committed to achieving its target of reducing fraud and error by 50% by 2006.

Earlier this year, the National Audit Office found efforts to tackle benefit fraud may be being hampered because fewer cases are being investigated.