The level of error and fraud in the tax credits system is growing, with more than £1 billion of over-payments and millions in under-payments, the public spending watchdog has found.
The National Audit Office (NAO) said the rate of error and fraud is expected to grow from the £1.57 billion in over-payments and £210 million in under-payments estimated by HM Revenue and Customs in 2015/16.
The watchdog said it would increase due to the impact of ending the contract with Concentrix, the controversial US contractor originally brought in to cut fraud and error but sacked last year following a barrage of complaints that claimants were wrongly having their benefits removed.
The introduction of a "commercial with a view to a profit" self-employed test would also contribute to more fraud and error, the NAO said.
Sir Amyas Morse, head of the NAO, said: "HMRC collected more tax revenue in 2016/17 and improved its service levels for taxpayers.
"However error and fraud is rising within tax credits and HMRC needs to make it easier for claimants to get help."
Sir Amyas, the Comptroller and Auditor General, qualified his regularity audit opinion on HMRC's 2016/17 resource accounts because of the levels of error and fraud in the payments of personal tax credits.
These accounts have been qualified on these grounds every year since tax credits were introduced in 2003/04.
Liberal Democrat MP Jamie Stone said: "People will be shocked to see that while their local schools and hospitals are facing cuts, almost £1.6 billion of taxpayers' cash has been paid out due to fraud or error.
"Millions of pounds are being wasted because of this Government's sheer incompetence.
"Meanwhile, some people are still not receiving the payments they deserve.
"The Government needs to get a grip. There is no point setting targets if they are missed time and again."
An HMRC spokesman said: "While the figure still remains lower than it has been in the past, we will analyse the causes fully in order to ensure people receive only the money they are due.
"We are working hard to make it as easy as possible for tax credits customers to keep their claims up to date so they receive the correct amount of money.
"Customers must give us accurate information and let us know if their circumstances change straight away, to avoid getting into debt they'll later have to pay back.
"HMRC will continue to take firm action on those who make dishonest claims and help make it easier for customers to get things right."