Debts unwittingly racked up by carers due to overpayments of their allowance should be written off immediately, the Government has been urged as it announced a review into the issue.

Work and Pensions Secretary Liz Kendall acknowledged the problem has seen many family carers “pushed to breaking point looking after the people they love”, as she committed to learning lessons to “put this right”.

The issue of people being penalised for going over their earnings limit for carer’s allowance even by as little as a few pence per week has previously been branded a “scandal” by a charity.

Historic overpayments have led to many carers – who must earn £151 a week or less to qualify for the allowance – unwittingly racking up unmanageable levels of debt and some quitting their jobs as a result.

Carers UK said some people have been left owing “hundreds, thousands and sometimes tens of thousands of pounds” to the Department for Work and Pensions (DWP), after not realising they had gone over the earnings limit and not fulfilling their duty to inform the department as a result.

The review, announced by the Government on Wednesday, will be led by Liz Sayce, who is the former chief executive of Disability Rights UK.

It will focus on how and why such debts were accrued, consider what the department termed operational changes to minimise the risk of overpayment in future, and look at how people with overpayments can best be supported.

But Liberal Democrat leader Sir Ed Davey insisted the majority of cases of overpayment should be “written off immediately”.

He told the Commons: “I’d like to ask the minister if she can reshape the review she’s announced, because it does seem to me self-evident that the vast majority of overpayments of carer’s allowance should be written off immediately.”

While he acknowledged there might be some cases of genuine fraud, he said the DWP “shouldn’t be persecuting tens of thousands of carers whose overpayments were caused by the crazy cliff edge in the current carer’s allowance system, and the DWP’s own incompetence in failing to notify them of overpayment immediately”.

Organisations representing carers welcomed the review but echoed the call for a commitment to write off debts and for wider reform of the “archaic and unfair” carer’s allowance system overall.

Carers Trust chief executive Kirsty McHugh said: “Too many people have had their lives ruined by being pursued for huge sums of money simply because they made an honest mistake.

“These fines need to be written off and the systems allowing them to build up must be overhauled.

“The Government should also take this opportunity to review and reform the archaic and unfair carer’s allowance system as a whole. Created in the 1970s, it’s just not fit for purpose today.”

She described the allowance of £81.90 a week as “insultingly low” and said its strict eligibility criteria prevents people “balancing caring with work”.

Carers UK urged an end to the current “cliff edge” in support.

Its chief executive, Helen Walker, said: “As well as raising the earnings limit to 21 hours at National Living Wage and removing the ‘cliff edge’ in the earnings limit, we need to also see wider reform and a review of carer’s allowance, to ensure it better supports unpaid carers.”

Ms Sayce said she is determined her work will “get to the bottom of how overpayments have occurred and how to prevent people who devote such time and care to others facing these difficulties in future”.

Employment minister Alison McGovern told the Commons the Labour Government had “inherited a system where busy carers already struggling under a huge weight of responsibility have been left having to repay large sums of overpaid carer’s allowance sometimes worth thousands of pounds, so what is supposed to be a safety net designed to catch those in need has instead felt like it is designed to catch them out”.

But Conservative former work and pensions secretary Mel Stride defended his party’s record, saying: “I wish the Government well with its review. We will look at it seriously and objectively because we’re all on the side – in this House – of carers.

“I stand by our record in office, of which I am proud.”