Labour has demanded an explanation from ministers as to why they hid official advice that planned welfare reforms could make 40,000 families homeless, while costing the taxpayer more than they save.
The warning came in a letter to 10 Downing Street from the office of Communities Secretary Eric Pickles in January.
But Iain Duncan Smith's Department for Work and Pensions went ahead with the publication in February of a Welfare Reform Bill which stated that it was "not possible to quantify" the cost to councils of rehousing families who lose their homes.
Shadow work and pensions secretary Liam Byrne said yesterday: "We want answers from Iain Duncan Smith in the House of Commons about why his department hid official Government evidence that his policy would make 40,000 families homeless."
Mr Pickles' spokesman insisted that he was "fully supportive of all the Government's policies on benefits".
And a source close to the Communities Secretary stressed that the letter was written not by Mr Pickles but by his private secretary Nico Heslop and was never discussed at Cabinet level.
But it is normally the convention in Whitehall that letters from private secretaries express the view of their minister. The source declined to discuss whether Mr Pickles had seen or approved the letter.
Labour's shadow communities secretary Caroline Flint said: "It has become clear that whilst Eric Pickles defends government housing policies in public, in truth he doesn't believe in them.
"The public and Parliament have a right to know why time and again his department dismissed the very same housing concerns he secretly raised with the Prime Minister."
In the letter, leaked to The Observer, Mr Heslop warned that the plan announced by Chancellor George Osborne last autumn to cap the total benefits received each year at £26,000 - equivalent to the average income of a working household - from 2013 would leave thousands of families unable to pay for their accommodation.
"Our modelling indicates that we could see an additional 20,000 homelessness acceptances as a result of the total benefit cap," he wrote.
"This is 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."
The letter also warned that the policy would undermine Government plans to boost the construction of affordable homes, because developers would no longer be confident of finding tenants able to pay market rents.
"Initial analysis suggests that of the 56,000 new affordable rent units up to 23,000 could be lost," warned Mr Heslop. "And reductions would disproportionately affect family homes rather than small flats."
Campbell Robb, chief executive of homelessness charity Shelter said: "With 21% of people struggling to meet housing costs, it's naive to think you can cut support without putting some people at risk of losing their home.
"Our services are seeing increasing demand as people are hit by the first wave of changes to housing benefit and yet Government hasn't looked to change any of its proposed reforms.
"The coalition Government should stop bulldozing through badly thought-through policies whilst ignoring independent evidence, its own expert panel and the views of those who will deal with the very real impact on people."
A spokesman for Mr 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."
Westminster Council, where many of the country's largest claims for housing benefit are made, said it was "very supportive" of the Government's reforms.
Philippa Roe, the council's cabinet member for strategic finance, said: "We are very supportive of the reforms to the housing benefit system as we simply cannot continue with a system where people were getting as much as £104,000 a year to live in homes that the average family would only dream of.
"Ultimately, the state should not be providing accommodation that working people could not afford themselves.
"We are providing support and assistance for every family affected by the new caps and will talk to landlords to try to negotiate lower rents, provide support to vulnerable people or help tenants that need financial advice.
"There is no need for anyone to end on the streets, in a bed and breakfast or hostel."Reuse content