“It should never have been allowed to happen and Labour should be embarrassed by what it left behind,” they add.
“We’re determined to sort things out. Firstly by building an immigration system that is properly controlled and which people can have confidence in. And secondly by building a new generation of data systems that will ensure that no one can come to Britain and claim benefits to which they are not entitled.”
In the past, the nationality of benefit claimants has not been recorded. Ministers ordered a comparison of records held by the UK Border Agency, Department for Work and Pensions and HM Revenue and Customs.
The analysis found there were 371,000 foreign-born claimants for out-of-work benefits, out of a total 5.5 million recipients. Of these, 258,000 were from outside the European Economic Area.
Officials used data from applications for National Insurance cards, which require people to declare whether they are foreign nationals. Just over half have subsequently become British citizens.
People from outside the European Union can legally come to Britain to work, study or visit with a visa. If they stay for a certain period of time, marry or have children they can apply to remain permanently — after which they become eligible for state handouts. Asylum seekers can also be eligible for benefits.
European nationals actively looking for work can claim unemployment benefit. However, those from some eastern European nations can only claim after 12 months on a registration scheme.
In the majority of cases, ministers found that the migrants claiming benefits were eligible for the money. In a small sample group, details from a quarter of claimants could not be verified, while 2 per cent of them were suspected of making fraudulent claims.
Mr Grayling and Mr Green write: “We’ll be investigating the records of all
those people claiming benefits to make sure they are entitled to what they are receiving.
“We’ve already identified some with serious question marks over both their right to benefits and their immigration status. Investigators are calling to see them.”
It currently takes about three months to stop benefits in these cases and ministers are drawing up plans to allow the handouts to be stopped immediately.
The analysis found that the highest number of migrants on benefits originally came from Pakistan, Somalia and India. Bangladesh, Iraq and Iran also featured prominently. European countries among the top 20 for claimants include Poland, Ireland, France and Italy.
The figures will lead to a debate over whether people who had previously paid tax should be given priority for benefits.
Mr Grayling and Mr Green write: “The integrity of our benefits system is crucial to the reputation of our welfare state — to whether taxpayers feel that they are getting a fair deal.
“There’s a natural instinct that says that no one from other countries should receive benefits at all. But if someone works and pays taxes here, it’s not unreasonable that we should help out if they fall on hard times.”
They add that the system has to be fair and stop people receiving money to which there are not entitled.
The Department for Work and Pensions has not made any estimate as to the total cost of the benefits claimed by the immigrants. Nor does the research cover those receiving the state pension, child benefit or other handouts.
Jobseekers’ Allowance is currently paid at up to £67.50 a week. Incapacity benefit is worth up to £94.25 a week. Housing benefits are typically more generous although the Government is planning to introduce a “benefit cap” to prevent any household from claiming a total of more than £26,000 annually.
Mr Grayling also disclosed last year that the Government was poised to take legal action against the EU to stop more foreigners being able to claim benefits in this country under controversial “reciprocal arrangements”.
David Cameron has pledged to bring non-EU immigration “under control” and a target to reduce those moving to Britain into the “tens of thousands” annually is one of his main policies.
The Conservatives accuse Labour of having let immigration spiral out of control with hundreds of thousands of people, including many from eastern Europe, settling in this country.
Apart from their impact on the welfare system, ministers are also concerned about the number of jobs being taken by immigrants.
Other official figures show that up to 90 percent of new jobs created in Britain over the past decade have gone to foreign -born workers while levels of unemployment have risen.
The Government believes that improving the education and training of Britons, particularly young people, is the key to ensuring that they can compete for jobs.