THE government has made compensation payments worth £87,000 to victims of the Concentrix scandal, it has emerged.

HM Revenue and Customs (HMRC) ended its deal with US-based contractor in November amid public outcry about welfare claimants whose funds were wrongfully stopped as they were branded benefits cheats.

Those affected included residents of flats neighbouring branches of the newsagent RS McColl, with Concentrix claiming the newsagent was in a relationship with claimants.

Others were accused of living with deceased former tenants or being in relationships with their own family members.

Scots MPs including Tasmina Ahmed Sheikh and Mhairi Black were among parliamentarians piling pressure on the government to act, as heartbreaking stories of the impact on claimants emerged.

One mother told The National of her struggle to explain to her seven-year-old son why the tooth fairy could not come to their house as their cash reserves ran out.

The deal, struck in November 2014, was designed to save the public purse £1 billion, but at the time of termination had achieved a saving of just £193 million, less than one fifth of the target.

Now, a report by spending watchdog the National Audit Office (NAO) has found 108,000 cases where claimants’ tax credits were adjusted or cancelled. Almost one third of these decisions were subsequently overturned following a mandatory reconsideration.

The report revealed that by mid-December 2016, HMRC had paid a total of £86,815 in compensation payments to claimants handled by Concentrix, including almost £68,000 for the worry and distress caused.

Concentrix was paid £32.5m over the life of the contract, but told the NAO it had made a loss of £20.5m on the deal.

In an early indication of the problems, in July 2015 Concentrix answered an average of just 4.8 per cent of calls within five minutes, against a target of 90 per cent.

Despite the problems, it managed to increase its commission from 3.9 per cent to 11 per cent following renegotiation three months later.

The NAO report said this was because its commission was going to be lower than it predicted as “the savings identified by its work were lower than expected, and it questioned the value of continuing the contract”.

But problems continued and the firm was “unable to cope” with the volume of calls it received in August 2016, exacerbated by IT failures.

In September 2016, HMRC stepped in, stopping new cases being passed to Concentrix and allocating the equivalent of 670 staff to help clear a backlog of 181,000 cases.

The Public Accounts Committee will now look to find lessons from the report.

Responding, a Concentrix spokesman said: “This was a hugely complex contract and programme, and as the report highlights, a number of issues emerged at the outset which laid the foundations for the challenges experienced throughout, particularly last year.

“We look forward to discussing the report with the Public Accounts Committee in order to ensure all lessons can be learned.”