Ministers are facing calls to apologise and pay compensation to hundreds of thousands of unpaid carers after a damning review of the benefit system revealed some considered suicide to escape their debts.

A report ordered by the government on the longstanding failures within the carer’s allowance found the Department for Work and Pensions (DWP) inflicted avoidable hardship and distress on carers and led to hundreds of millions of pounds of taxpayers’ money being misused.

The investigation said fault lay with “systemic” issues at the DWP and said carers should not be blamed for falling foul of what it said were complex and confusing benefit rules.

Unpaid carers who look after loved ones for at least 35 hours a week are entitled to £83.30 a week carer’s allowance, as long as their weekly earnings from part-time jobs do not exceed £196. But if they exceed this limit, even by as little as 1p, they must repay that entire week’s carer’s allowance.

Under the “cliff edge” earnings rules, this means someone who oversteps the threshold by as little as 1p a week for a year must repay not 52p but £4,331.60, plus a £50 civil penalty.

Liz Sayce, a disability rights expert and the author of the review, called the DWP’s handling of the carer’s allowance a “longstanding injustice” and said the scale of the problem, and the repeated failure to heed warnings or fix issues, was “entirely unacceptable”.

New DWP statistics published by the review show that 180,000 carers ran up overpayment debts of £300m between 2019 and 2025, despite promises to fix the system. “The DWP has failed to act systematically … and take actions that could have stemmed these overpayments,” the review concluded.

One in five carers who claimed carer’s allowance and worked part-time were hit with an overpayment between 2019 and 2024, the report found. More than 852 carers who ran up overpayments were passed to the Crown Prosecution Service for criminal sanction.

Sayce highlighted the human impact of the failures on carers, mainly women on low incomes who care for disabled children or elderly parents. Evidence found carers contemplated suicide, and felt shame and mental distress. Sayce said being caught in the system was like being “at the whim of a faceless machine”.

Sayce added: “This shame is experienced as the polar opposite of the recognition carer’s allowance aims to offer to unpaid carers who are regularly described by the government as ‘unsung heroes’.”

She cited an unpaid carer who described the predicament faced by carers trying to navigate the carer’s allowance system as “like playing a game where only one side knows the rules”.

The review was triggered after a Guardian investigation revealed how carers had been unfairly hit with draconian penalties of as much as £20,000 after unknowingly running up overpayments of the carer’s allowance.

Although the government has announced it will carry out a reassessment of a decade of overpayments to identify instances where debts can be cancelled or reduced, politicians and carers on Tuesday demanded the DWP formally apologise and compensate carers whose lives were shattered by the scandal.

The Liberal Democrat leader, Ed Davey, said: “The government and Conservative ministers should apologise to the tens of thousands of carers who were treated so disgracefully in the last parliament, having ignored all the evidence that this was a failing, broken system, out of step with the law.”

Andrea Tucker, a former unpaid carer who successfully had her £4,600 overpayment quashed by a social security tribunal earlier this year, said: “I’m concerned there has been no official apology. The stress and anxiety the DWP put many unpaid carers through warrants compensation.”

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Sayce suggested it was up to ministers to decide whether carers should be compensated noting that compensation schemes for the Windrush and Post Office scandals were “slow to deliver and resource intensive”.

“DWP will need to consider the options and what is feasible here,” she wrote.

The review made 40 recommendations to reform what Sayce described as an outdated and dysfunctional benefit – most of which have been accepted by the government. They included:

The writing off and refunding of potentially hundreds of millions of pounds of overpayments that were issued as a result of flawed and unclear DWP guidance.

An end to the criminal prosecution for fraud of all but the most serious cases.

Ministers should consider a full review of carer’s allowance, an outdated benefit that is “ever less fit for purpose”.

Sayce paid tribute to the “invaluable” role of carers, carers’ charities, DWP whistleblowers, and journalists in bringing the carer’s allowance scandal to the policy forefront.

The review will heap pressure on Sir Peter Schofield, the DWP permanent secretary who told MPs in 2019 he would fix carer’s allowance problems, promising that the introduction of then new data-matching technology would stop overpayments “in some cases before they happen”.

However, Sayce found the technology heralded by Schofield was underoptimised and understaffed, its main use being to hit benefits spending reduction targets and other internal DWP performance measures rather than prevent overpayments. The number of people with outstanding overpayment debt actually rose 71% between 2018 and 2024.

It said the DWP had failed to “grip” the problem of overpayments. “The … DWP has failed to demonstrate the ministerial and senior focus needed to resolve these persistent injustices and reform carer’s allowance to implement its core purposes in the modern world,” it said.

The review highlighted how the “cliff edge” design of carer’s allowance penalties resulted in carers rapidly and unwittingly building up big overpayments. Sayce urged “quick, imaginative and fair solutions” to the problem.

A spokesperson for Carers UK said: “It’s absolutely right that the government has taken the bold move of owning up to the mistakes of the DWP, which it largely inherited from the last Government.

“Liz Sayce OBE, who led the independent review has really listened to us and to unpaid carers, and delivered an incredibly detailed report.

“We also want to pay tribute to the work that the Guardian and other media outlets have done in bringing this issue to public attention.