Nearly 10,000 driving licences were earmarked for cancellation last year as part of a crackdown on illegal immigration, new figures reveal.
The number was disclosed as a watchdog delivered a string of critical findings on efforts to create a "hostile environment" for illegal migrants in Britain.
A report suggested people without leave to be in the country were being missed - while others were wrongly flagged as being here unlawfully because of record-keeping failings.
Inspectors found only a small proportion of revoked licences were surrendered to driving authorities, while the Home Office was accused of failing to fully exploit intelligence it was receiving under the scheme.
A separate report revealed that not all arrested foreigners are referred to the department for a check on their immigration status - and it was impossible to say how many went unchecked.
Chief Inspector of Borders and Immigration David Bolt examined powers to refuse or revoke a UK driving licence and prevent the opening of a bank account introduced in the Immigration Act 2014.
Records in the Home Office's main caseworking database were incomplete, had been finished incorrectly, or there were delays in updating them, it was found.
In the case of driving licences, these record-keeping failings were to "some extent mitigated", the report said, but added: "It remains the case that some individuals were being wrongly flagged to DVLA as present in the UK without leave, while others who were present without leave were being missed."
In 2015, the Home Office requested that the DVLA revoke licences for 9,732 individuals. Meanwhile, figures for 2015/16 showed that just 337 licences revoked for immigration reasons were surrendered to the body.
The report said the small proportion of licences surrendered "undermines the intended two-fold impact of revocation: stopping illegal migrants from being able to drive lawfully, and from using a driving licence to access other benefits and services."
From April 2015 to January, 583 individuals left the UK having been stripped of their driving licence.
In five cases probed by inspectors, the licence holder had departed the country before their leave had expired and had never been unlawfully resident in the UK, while last year 259 revoked licences had to be reinstated.
The report said the Home Office "did not appear to appreciate the seriousness of such errors for the individuals affected".
Meanwhile, examination of instances where an applicant for a bank account or other product was matched to an individual on a "disqualified persons" list showed 17 should never have been listed or should have been removed from the list. And out of 169 individuals, only 10 had left the UK after a match had been reported.
The inspection report added that the development and implementation of the measures was "handled well".
Liberal Democrat home affairs spokesman Alistair Carmichael said: "A hostile environment seems to be a polite way of saying a bullying environment, where innocent people are made to feel like unwelcome criminals."
Meanwhile, a second of six reports from the watchdog published on Thursday said data showed that between 185,000 and 193,000 foreign nationals were arrested by UK police forces in the year from April 2014.
Not all foreign nationals arrested are referred to the Home Office for an immigration status check.
The report said: "The reasons for this vary: some offenders successfully misrepresent themselves as UK citizens or EEA nationals; police officers may not be aware that it is possible to take immigration action against some EEA nationals; and the purpose and value of an immigration status check may not be evident to some officers."
The inspection found that outside London the majority of requests for checks were still being made to local immigration officers rather than a central command and control unit, adding: "Because of these different routes, it is not possible to say how many arrested foreign nationals are going unchecked."
A Home Office spokesman said measures discussed in the first report "should not be seen in isolation but as part of the wider action we are taking that has made it harder than ever before for illegal migrants to live in this country".
The Government is identifying and removing more foreign criminals from the UK than ever before, the spokesman added.