A key committee of MPs has called on ministers to radically simplify the benefits system.

The Commons public accounts committee said in a report released on Thursday that fraud and error cost the taxpayer £2.6bn last year, much of which was a result of over complicated processes for claiming government cash.

It pointed out that between 2000 and 2004 364 statutory instruments were introduced, while the Child Poverty Action Group's guide to welfare benefits has nearly quadrupled in size since 1990.

The public spending watchdog called on the Department of Work and Pensions to continue early steps to reduce red tape but warned that ministers may have to give up ambitions for increased equity.

Committee chairman Edward Leigh said that as well as the cost of errors, complexity was deterring benefit take-up levels.

"There will always be a degree of complexity in a benefits system if it is to operate fairly and be sensitive to the needs of people who live in varying circumstances in the real world," he said.

"We find ourselves now, however, with a system which has become increasingly arcane, unwieldy and baffling to both benefit staff and customers.

"Successive governments have recognised the need for simplification of the system. Complexity makes it easier to commit fraud and for staff and customers to make mistakes.

"It cannot be stressed too often just how much money is being wasted through fraud and error: an estimated £2.6bn in the single year of 2004/05. And complexity can lead to low levels of benefit take-up by vulnerable claimants.

"But simplification is not an easy option. Any significant reform is likely to involve a trade-off with fairness and, as a result, the creation of 'losers'."

However he added that government moves towards simplification have not gone far enough.

"The Department for Work and Pensions has started to pursue simplification, including the creation of a benefit simplification unit in response to the concerns of this committee," Leigh said.

"This is welcome but developments so far have been piecemeal and, without any objective criteria for measuring complexity, no one knows whether any progress has been made.

"The drift towards greater complexity does not have to be inevitable. The DWP must address the task of reversing that drift both vigorously and on many different levels.

"It must explain its intended actions more clearly; develop a simplification strategy with specific targets; drive to improve knowledge of benefits among its staff; introduce easily understandable measures of progress; and give more information to parliament on the potential effects on the system of new legislation.

"Perhaps one of the most important actions the DWP can take is to banish all gobbledegook from its leaflets and letters."