MILLIONS of pounds have been saved with improvements in the way that incapacity and disability benefit entitlements are assessed, say spending watchdogs.

The Government pays out £18bn a year in the benefits to 3.8m people.

The National Audit Office said the Department for Work and Pensions had made real progress in tackling problems with medical assessments.

Processing claims more quickly and reducing a backlog of incapacity benefit claims from nearly 300,000 in 2001 to under 40,000 had saved taxpayers £50m.

The backlog is expected to be cleared within six months.

The findings come in a report to Parliament.

The head of the NAO, Sir John Bourn, said the department and its contractor Schlumberger, had improved processing, the standard of medical reports and the quality of service.

But he said there was room for further progress.

"I am pleased the measures taken have resulted in significant improvements, especially as this means a better service for customers, who include some of the most vulnerable members of society," he said.

"It is crucial that assessments are undertaken fairly and efficiently, while ensuring benefits are paid only to those genuinely entitled to them," added Sir John.