Benefit claimants will be fined instantly if they negligently give wrong information on their claim.
The penalties are being introduced by the Department for Work and Pensions (DWP) in an attempt to slash the £1.3bn overspend on benefits lost through customer error.
However, the DWP also underpaid £1.3bn of total benefit expenditure due to fraud and error, according to latest figures.
Claimants will face penalties if they negligently provide incorrect information on their benefit claim, or don't tell the Department quickly about a change in their circumstances.
It added that these will be civil penalties, not criminal convictions.
The provisional 2010/11 figures revealed that the DWP additionally lost £1.2bn through fraud and £900,000 from official errors.
As well as the new penalty, other measures are being introduced to reduce annual welfare fraud and error overpayments by one quarter (£1.4 billion) by March 2015.
These include:
• a new single fraud investigation service,
• increased asset seizure,
• tougher one-strike, two-strike and three-strike rules, including three years for people with multiple convictions,
• deducting money directly through PAYE,
• and case-cleaning over 1 million claims to remove official or customer error.
In the future, claimants on out of work benefits will also have to sign a commitment which will set out their obligations and responsibilities.
Lord Freud, Welfare Reform Minister, said: "It is not acceptable for people to negligently give us incorrect information or have no reasonable excuse for not telling us when their circumstances change.
"In addition to the new penalty, Universal Credit will simplify and automate the benefits system to make it less open to abuse and ensure money is going to those who need it the most."
