New figures show only 800 out of 160,000 cases detected last year ended up with fines or jail. The admission was a major blow to Tony Blair's anti-fraud campaign and sparked outrage among MPs.
Conservative social security spokesman David Willetts said: 'These are shocking figures. They show that 95.5% of housing benefit cheats are getting off. Labour talk about crackdowns on fraud but yet again they are failing to deliver. This is money that ought to be spent on people who need it.'
There has also been a huge drop in the number of fraud cases uncovered in the first place - down from 220,000 the year before.
He told the newspaper: 'This government is committed to zero tolerance of benefit fraud of all kinds. Councils have been offered considerable help since 1998 to crack down on it. But I am becoming increasingly exasperated with the failing of some councils to take tough action. I have the powers to take steps against failing councils and I'm ready to use them.'