The blunder was the result of the department's failure to identify them, the Commons Public Accounts Committee said yesterday.
The committee made a damning attack on the department's inaction over fraud, inability to predict and control its budget and levels of underpayment and overpayment of benefit. It said it was "dismayed" that some of those entitled to a severe-disability premium might have died before receiving arrears worth up to pounds 12,500.
An error dating back to 1988, in which officials failed to identify those entitled to benefits - although they were on other disability benefits - led to 24,000 people losing pounds 90m.
The department discovered the error in 1992. The committee says it is "quite unacceptable" that it then took three years to rectify the errors. Past dormant claims still have to be examined to see if more are entitled to the cash.
Alan Williams, a Labour member of the committee, said people had died in poverty when large sums were owed to them. To deprive them of their money, he said, was "sordid and singularly despicable". Mr Williams said: "Ministers have deprived the poorest people in Britain of about pounds 200m".
He cited a parliamentary answer from the DSS "that there are no plans to take any specific steps in respect of customers now deceased" as regrettable. Mr Williams said the department was under a duty to rectify the mistake, whether the claimant was alive, or had since died. Their carers should be entitled to the cash, he said.
The committee also attacked the department of Peter Lilley, the Secretary of State for Social Security, for overspending for the third year running. It said it was "dismayed" at the errors in the level of income-support payments. Errors totalled pounds 848m, more than 5 per cent of the amount spent on income support. This "extraordinarily high" figure includes pounds 546m in overpayments and pounds 183m in underpayments.
The committee warns the department that the dramatic change in efficiency it is seeking "must not put accuracy at risk or lead to even worse error rates".
One computer error has led to more than pounds 2.25m in overpayments being lost, because the department had no right to claim the money back.
The MPs are "deeply concerned that the level of fraud, an estimated pounds 1.4bn on income support alone, is so high". The department should accelerate its programme to establish the level of fraud in other areas.
The committee made its criticisms the day after Mr Lilley had turned down the recommendations of the Social Security Committee for tightening up housing-benefit fraud.
Nineteenth Report of Committee of Public Accounts, Session 1995-6, HMSO pounds 10.60Reuse content