Thousands of people on disability benefits will receive on average £5,000 after an error by the Department of Work and Pensions left them out of pocket.
180,000 people were affected after they were moved on to Employment and Support Allowance (ESA) in 2011.
The cost of paying them extra after their claims have been corrected is estimated to add another £700 million over the next seven years, taking the total additional bill to £1.67 billion, an internal analysis released on Wednesday shows.
It noted: “The Department estimates it will pay £970 million in historic underpayments largely over the financial years 2018/19 and 2019/20.”
It was initially thought that 70,000 people were affected but the figure could end up being five times that with 300,000 cases still yet to be assessed which could cost the DWP up to £2.2 billion.
Marsha de Cordova, shadow minister for disabled people, said: ”Disabled people have been short-changed and denied the social security they were entitled to.
“This mess is another example of how the Conservatives have created a hostile environment for sick and disabled people.
”The Government must ensure that disabled people who have been so unfairly treated are properly compensated.
“A Government that forces disabled people into debt and even makes some destitute is a disgrace.”
A DWP spokesperson said: “Anyone affected by this historic error will receive all of the money they are entitled to. That is why we have created a dedicated team of over 400 staff to examine cases, and have paid back around £120 million so far.
“We have worked with charities and other disability organisations to make sure that we are providing the right support to all affected claimants and are hiring and allocating more staff to do that.”
The Treasury will also be concerned of the huge DWP overspend with the highly anticipated Budget set to be announced at the end of the month.