David Cameron has received a stark warning from within his own cabinet that the government’s plans to cut welfare payments risk making 40,000 families homeless.
A letter from the private office of Communities Secretary Eric Pickles appeared to reveal deep concern in his Department for Communities and Local Government about proposals to cap total household benefits at £500 a week.
Pickles' private secretary Nico Heslop wrote to the Prime Minister to warn that the estimated £270 million annual savings from the reforms could be wiped out by the cost to councils of rehousing thousands of families who can no longer afford to pay their rent.
The letter, leaked to a Sunday newspaper, claimed the scheme could end up increasing the burden on taxpayers rather than contributing towards the government’s deficit reduction programme.
Heslop said the benefit cap - announced by Chancellor George Osborne last October and due to come into effect in 2013 - raised “some very serious practical issues" for Pickles' department.
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The leaking of the letter, which Heslop sent to the Prime Minister's private secretary Matthew Style, appears to expose deep rifts at the heart of government over the planned welfare reforms.
Heslop said: “Our modelling indicates that we could see an additional 20,000 homelessness acceptances as a result of the total benefit cap. This on top of the 20,000 additional acceptances already anticipated as a result of other changes to the housing benefit.
“We are already seeing increased pressures on the homelessness services.”
He added: “We are concerned that the savings from this measure, currently estimated at £270 million from 2014-2015, does not take account of the additional costs to local authorities [through homelessness and temporary accommodation]. In fact we think it is likely that the policy as it stands will generate a net cost.”
He also claimed the welfare cuts will put at risk more than half of the 56,000 affordable homes the government hopes will be built by 2015, because developers will doubt whether they will be able to recoup their costs from tenants.
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He wrote: “Initial analysis suggests that of the 56,000 new affordable rent units up to 23,000 could be lost. And reductions would disproportionately affect family homes rather than small flats.”
The letter warned that “it is important not to underestimate the level of controversy” that could be generated if families are forced to divert child benefit to pay for housing costs.
Shadow Work and Pensions Secretary Liam Byrne said: “We were assured by ministers that costs wouldn’t rise.
“Now top-level leaks reveal the truth. Iain Duncan Smith has promised the House of Commons he will not U-turn on the benefits cap. Perhaps now David Cameron will order him to think again.”
Sources within Pickles' department declined to say whether the senior minister approved the letter, which is understood to have been written in January and has not been discussed by the cabinet.
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A spokesman for Pickles said: “We are fully supportive of all the government’s policies on benefits. Clearly action is needed to tackle the housing benefit bill which has spiralled to £21 billion a year under Labour.”