The Department of Work and Pensions (DWP) has announced that proposed changes to its policy on Local Housing Allowance (LHA) will apply to all tenants in supported housing, not only those with new tenancies.

Housing benefit, used to pay the higher rents needed to cover essential housing support services, will be capped to the average payable rent for ordinary accommodation, leaving shortfalls of hundreds of pounds weekly for individual tenants, and potentially arrears for landlords.

Earlier this month, the Secretary of State for Work and Pensions Damien Green MP announced that the LHA policy as it affects supported accommodation would be suspended until 2019 to allow time to improve implementation and for funds to be passed to devolved administrations to deal with the problem the policy created.

While the DWP has pledged to make up the shortfalls that tenants will face, it has now decided to widen the pool of affected tenants to everyone in supported accommodation – as opposed to only new tenants.

The Scottish Federation of Housing Associations (SFHA) said the move could penalise even more vulnerable tenants, including disabled and older people, who stand to lose significant sums of money.

The impact of the LHA cap was set out in an SFHA report, however, since the report only covered possible new tenancies, the impact is likely to be over five times greater than the SFHA first estimated.

Mary Taylor, chief executive of the SFHA, said: “(Firstly), we had the DWP as Dr Jekyll: none too thoughtful but at least honestly trying to fix the abominable mess of its own creation. (Now) we have it as Mr Hyde. Not content with creating instability around the development of supported accommodation – because nobody yet knows how it will ultimately be funded – the DWP has thought fit to cruelly pull the rug from under the people most at need of help, not harm. Current supported tenants now face years of uncertainty as to whether the social security system will support them or not, which will cause untold anxiety and distress.

“We know that the solution to this problem will land with the Scottish Government, and we very much hope that, in light of this latest disturbing policy clarification, Scottish Ministers will make a statement reassuring vulnerable tenants and their social landlords that it will take all necessary steps to ensure that invaluable services are protected and supported accommodation tenancies will be maintained.”

The Chartered Institute of Housing (CIH) said the announcement is “disappointing and will have huge implications”.

CIH chief executive Terrie Alafat CBE said: “The latest announcement from government that the LHA cap will apply to all tenants in supported housing, not only those with new tenancies from April 2017, is disappointing.

“It will have huge implications for existing and new supported housing schemes. For that reason, CIH is calling on government to reconsider this retrospective application, and bring it into line with the application to new tenants in the wider social sector.

“If it is applied to all tenants, it will increase levels of uncertainty over existing schemes. The system of top up funding through a local pot means that providers are already considering whether they will develop new schemes; this measure will increase the risks to the viability of some existing schemes and in the long term, potentially reduce the overall provision of supported housing. That will mean vulnerable people will struggle to get the homes and help they need.

“Long term supported housing is part of the answer to the government’s strategy on Transforming Care. CIH has called for more housing, including more sheltered and extra care schemes, to increase the options for older people to move into housing better suited to their needs. But this measure will make delivering these options far harder, and will leave people in unsuitable accommodation for longer.

“CIH believes that this will make it more difficult for providers to play their full role in tackling the crisis in our health and care services, if they are unable to guarantee long term funding for great preventative supported housing schemes.”