Plans to scrap government support for local welfare assistance could put thousands at risk of homelessness and cost hundreds of millions of pounds, councils claim.

Analysis from the Local Government Association (LGA) suggests loss of the £172m annual funding for local welfare ‘safety net’ schemes from central government could see 50,000 people at greater risk of eviction from their homes.

The yearly cost of providing housing for this number of people would be around £380m, as thousands of councils are forced to significantly scale back support – research suggests.

Ministers announced in December as part of the provisional Local Government Finance Settlement that local welfare would no longer be funded for town halls. Instead councils had £129.6m of existing grant identified for local provision.

Homelessness charity Crisis today said it ‘stands alongside the LGA’ in urging the Government to rethink its decision to cut ‘this vital lifeline’.

Cllr David Sparks, LGA chair, said: ‘Local welfare funding has been used by councils to provide crucial support to people facing personal crises in their lives and prevent problems from escalating.

‘This money has helped keep a roof over the heads of thousands of people facing the threat of losing their homes. In doing so it has also saved the public purse many millions more which would have to have been spent finding new homes for people who lose their own.

‘Government’s decision to withdraw this funding is an expensive mistake which will not only lead to a reduction in support for those who need it most, it will also cost taxpayers millions more in the long run.

‘Local safety net schemes have been funded by government for almost 30 years. At a time when councils are tackling the biggest cuts in living memory, many local areas simply cannot afford to keep these schemes going if government withdraws the funding.’

Reacting to the report, Jon Sparkes, chief executive of Crisis, said: ‘For people facing or trying to escape homelessness, Local Welfare Assistance can be the final safety net – a small amount of money that makes a huge difference at a time of crisis. Today’s report clearly shows the damage that will be done if this funding is cut. On top of the human cost of homelessness, it makes absolutely no economic sense.’

A Government spokesman said: ‘This Government gave councils more control on the basis that they understand best their local area’s needs - and they have proved this is the case, with innovative ways to help local vulnerable groups being established across the country.

‘We have identified £129.6m for councils nationally next year to maintain local welfare schemes. This is in contrast to the old centralised grant system that was poorly targeted. Councils now choose how best to support local welfare needs – because what is right for one part of the country will not necessarily be right for another.’