Housing Benefit (HB) subsidies could be axed for councils which have sought to get around the so-called ‘bedroom tax' by re-designating their properties without cutting rents, welfare ministers have warned.

In a letter sent to all council chief executives today, welfare minister Lord Freud states where local authorities have reduced the number of rooms without reasonable grounds and without reducing rents, the Department for Work and Pensions (DWP) could either restrict or not make HB payments.

Lord Freud states such blanket redesignations are inappropriate and fall outside the spirit of the policy to remove the Spare Room Subsidy - which is designed to trim £500m from the annual welfare bill through greater use of social housing stock.

‘I would like to stress that if it is shown properties are being re-designated inappropriately this will be viewed seriously,' Lord Freud writes.

‘If the department has cause to believe this is the case, we will commission an independent audit to ascertain whether correct and appropriate procedures have been followed.'

A fortnight ago, Manchester City Council hosted a conference at which 36 local authorities considered how the welfare change was affecting residents.  The conference called for the government to scrap the reform which was introduced in April.

Last month Leeds City Council informed 837 households of its plans to reclassify their homes, many of which are five- bedroom properties, since re-designated as four-bedroom properties.

A DWP spokesman told The MJ: ‘Where re-designation of property does occur it's expected that the rent charged should change accordingly, and from that, the amount of subsidy paid from the DWP to the council must also be amended. This is fair.

'However it has come to light that some councils are re-designating properties and claiming the same amount of Housing Benefit subsidy,' the spokesman said.