Draconian penalties levied on unpaid carers who unwittingly rack up “overpayments” running into thousands of pounds after falling foul of benefit rules are to be overhauled, the Guardian understands. The move comes six months after a Guardian investigation revealed tens of thousands of vulnerable unpaid carers were being ordered to repay hefty overpayments – and even threatened with criminal prosecution – over minor breaches of earnings rules. The “carer’s allowance scandal” as it has become known, uncovered the often frightening and humiliating punishments imposed on carers by benefits officials, causing public outrage and leading to comparisons to the Post Office scandal. The government is understood to believe both the level of overpayments allowed to accumulate under the previous administration and the financial and emotional impact on vulnerable carers are unacceptable. It is expected to appoint an independent chair to review overpayments. The move comes on the eve of a Westminster opposition-day debate on carer’s allowance called by the Liberal Democrats, whose leader, Ed Davey, has made reforming carer’s allowance a key party policy, and who has been pressing Labour to make changes. Davey, who is a carer for his disabled teenage son, John, will tell the Commons the benefit is “not fit for purpose”. He is expected to criticise the Department for Work and Pensions (DWP) for failing in recent years to do more to prevent carers being hit with overpayments that have left many with huge debts. “This is a terrible scandal. Tens of thousands of carers have become the victims of a system that is supposed to be there to support them. The last government should have acted then. But it didn’t. So can I urge the government today: act now,” Davey is expected to say. The Lib Dems have for months called for carer’s allowance rates to be boosted and its complex earnings rules overhauled. They have also insisted existing carer’s allowance overpayments – about £250m in total owed by approximately 34,5000 claimants – be written off. There are about 5.8 million unpaid carers in the UK who look after ill, disabled or frail loved ones. Over 1 million are in poverty. About 1 million carers claim carer’s allowance, a weekly benefit worth £81.90 a week. Claimants are allowed to earn £151 a week from paid work, equivalent to about 13 hours at the national minimum wage. New research indicates as many as one in five of all carer’s allowance claimants had to repay large sums after inadvertently falling foul of the £151 earnings limit. It also found anxiety and despair among carers “made to feel like criminals” after they were harshly punished for overstepping earnings limits by as little as £1 a week. Findings from a survey of 12,500 unpaid carers by Carers UK, seen by the Guardian, found of the 40% who claim or had claimed care’s allowance, one in five said they were hit by overpayments after unknowing breaching the earnings limit, often because they had been paid overtime or received a bonus. The draconian punishments for breaching earnings limits are notorious among carers: even going £1 over the weekly limit means they must repay the entire benefit. A carer who earned £1 more than the £151 threshold for 52 weeks, therefore, would pay back not £52 but £4,258.80. One carer told the survey she went £4 over the limit during a four-month period in Covid due to wage fluctuations caused by furlough. She said: “I was made to feel like a criminal … I had to pay nearly £400 back and was terrified about getting a criminal record. I became very depressed over the stress of this. So horrendous.” Another said: “I earned £1 too much for 19 weeks and have to pay all the carer’s allowance from that time. I ended up using credit cards to cope. I’ve had to give up carer’s allowance to get another job to cope financially. My husband is 70 and on state pension. This is crippling us mentally and physically.” Four in 10 claimants in the survey said fear of the restrictive rules for carer’s allowance and the risk of harsh punishments led them to give up paid work. Some said they had turned down pay rises, and had to forgo paid training opportunities to enable them to retain eligibility for carer’s allowance. One carer told the survey they reluctantly gave up work after 45 years to maintain eligibility for carer’s allowance: “Trying to balance work and home is difficult at the best of times but with caring it is impossible. Some real compassion and common sense to consider what is a reasonable threshold needs to be considered,” they said. Helen Walker, chief executive of Carers UK, said: “It’s a scandal that so many carers, who have unwittingly received overpayments, are facing additional stress and anxiety. Many are under huge pressure already and in precarious financial positions due to their caring role.” Although the government has been trialling a text alert system to warn carers when they may have been above the earnings limit, campaigners are concerned more needs to be done, and that the DWP’s repeated failure to eradicate overpayments, despite promising to do five years ago, needs to be properly accounted for. The Guardian’s revelations in recent months have highlighted serial shortcomings in the administration of carer’s allowance over many years, despite warnings from MPs and auditors. It has raised question marks over the management and culture at the DWP, and the priorities of former ministers. Questions have also been about asked about the DWP’s policy of prosecuting some carers for earnings breaches officials could have stopped early on. In one notorious case it used proceeds of crime laws to grab £16,000 inherited by a carer from the mother she cared for, even after she’d agreed to repay the money at the first opportunity.