Changes in the benefit system by the government could result in 40,000 families losing their homes, a senior cabinet minister warned last night.
In a letter to Prime Minister David Cameron, the office of communities secretary Eric Pickles warns government plans to cut housing benefit and introduce a £26,000 cap on the total amount a family can receive per year could have disastrous consequences.
Pickles estimates an additional 20,000 people could be made homeless as a result of the benefit cap. This is on top of the predicted 20,000 who could be forced into homelessness as a result of other changes to the housing benefit system.
The letter, leaked to the Observer newspaper, says the predicted saving of £270 million the benefit changes should achieve is unrealistic as this figures does not take into account additional costs to local authorities like paying for temporary accommodation for those made homeless.
The letter, written by Pickles' private secretary Nico Heslop, says the plans would result in a financial black hole and taxpayers would end up footing the bill and supporting those made homeless.
It also voices concerns that thousands of affordable homes due to be built in the next four years will have to be put on hold as developers worry tenants won't be able to meet the monthly rental costs.
In order to be economically viable, Heslop says providers must be able to charge rents of around 80% of market levels – but if an overall benefit cap is put in place many people won't be able to afford this. The letter states out of the 56,000 new affordable houses planned – 23,000 could be lost.
Liam Byrne, Labour's work and pensions secretary says this letter is proof the government's welfare minister Chris Grayling, was "less than straight" when he outlined the benefits cap in May.
"We've been saying for months that the method the government is proposing for introducing a benefits cap is so badly thought through that it risks putting up the benefits bill by putting up the costs of homelessness. Now we know that the government itself secretly agrees," he adds.