According to The Guardian, local authorities in London have said that rent collection levels for homeless tenants placed in emergency accommodation have collapsed following the introduction of the Universal Credit digital service last year.

Councils have pointed out that Universal Credit rules force homeless families to be put up in short-term, bed and breakfast-style lodgings to wait six weeks to qualify for rent support, something they say is incompatible with laws that require councils to move those families on to more suitable accommodation within six weeks.

Croydon Council, one of the few areas where Universal Credit has been fully rolled out, said it faces an unpaid £2.5 million rent bill this year as a result, and has warned ministers this scale of losses is unsustainable.

There are 1,250 of their 14,000 tenants on Universal Credit. The council’s rent collection levels are at 98% but for Universal Credit tenants this drops to 72%.

Alison Butler, deputy leader and cabinet member for homes, regeneration and planning at Croydon Council, said Universal Credit and the benefit caps “have left hundreds of Croydon families in more debt and saddled the council with spiralling costs”.

She added the council had “repeatedly” raised concerns with the government and welcomed the move to consider exemptions for homeless families.

Now the Department for Work and Pensions (DWP) has confirmed it is looking at introducing an exemption for people who are made homeless and is working with councils to “fully support” anyone living in temporary accommodation who is on Universal Credit.

It is understood that ministers are preparing to issue new guidance under which homeless families in full universal credit rollout areas will receive financial support through housing benefit. This would represent a significant reversal for the new system, which was supposed to simplify and universalise the benefit system.

A Department for Work and Pensions spokesman said: “We are working with local authorities to ensure the small number of universal credit claimants living in emergency temporary accommodation are fully supported, including looking at new exemptions for those who are made homeless.”