Working families, ex-servicemen and people who volunteer will get priority in council housing lists over those who are homeless or destitute under new Whitehall plans.

Vulnerable homeless families will be rehoused in the private rented sector, often many miles from where they live, to free up social homes for so-called “priority” households, according to a government document presented to councils this week and seen by the Guardian.

The government is privately urging councils to adopt housing allocation policies that favour “deserving” families, alongside draconian powers that in effect remove the long-established obligation on councils to provide a social-rented property to homeless families.

The move, which comes as local authorities anticipate a huge wave of families presenting as homeless as a result of welfare reforms, is likely to accelerate the process by which poorer families in the private rented sector who are made homeless are shifted from expensive areas such as London to cheaper areas of the UK.

A briefing to council officials this month by Andy Gale, a homelessness adviser to the Department for Communities and Local Government, said local authorities that adopted the new homeless powers in full would have to undergo a procurement exercise to ensure they had plentiful private rented sector accommodation available to homeless families. “For some authorities in London, this may inevitably mean looking for accommodation outside of their area,” it said.

The paper advises local managers how to persuade local councillors to adopt the new homelessness powers, some of whom it suggests may be reluctant to use them. It urges officials to “avoid as far as possible the risk of the changes being used politically, leading to statements such as … ‘Isn’t this all about cuts and welfare reform?’ … [and] ‘Surely the homeless are in the greatest housing need?'”

Gale said the changes needed to be “sold” to members as a “strategic package” that would enable them to build “sustainable social housing communities” and urges officials to impress upon councillors that the powers prevented people playing the system by pretending to be homeless in order to get on a fast track to social housing.

It states “By breaking the link between homelessness and social housing many households (especially those living with parents and relatives where homelessness may be seen as the way to obtain social housing), will no longer apply as homeless. Many will remain living with parents and extended family.”

The paper makes it clear that the hurdles applicants will have to jump though to get social housing are so high that most will accept the first offer of private rented accomodation. “The overall conclusion of introducing this framework is inevitably that new statutory homelessness applications will become minimal.”

Pregnant women and families with children, or vulnerable individuals such as care leavers or people with severe health problems who are accepted as homeless currently go to the top of the local queue for social housing. But local authorities now have powers to redraw allocation priorities in order to give priority to “groups who make a special contribution”.

The paper prepared by Gale says these these priority groups might include:

• Low-income households who are in employment.
• People who are in training or who volunteer in the local community.
• Potential tenants who are “prepared to undertake a training course on how to be a good tenant”.
• People with no history of rental arrears and who can demonstrate “good behaviour”.
• Ex-armed forces personnel.

The paper accepts that councils that discharge their homelessness duties in the private sector in distant towns are likely to face legal action from tenants who will argue that placing them outside their local area is not “suitable”. Although ministers have said that such a move would be “unfair and wrong”, the paper drawn up by Gale advises councils how to ensure out-of-borough placements can be framed to avoid legal challenge.

Kay Boycott, director of communications, policy and campaigns at Shelter, said: “Now that homeless households no longer automatically qualify for social housing, we’re really concerned that those who need it the most will lose out. But with such a shortage of decent, affordable private rented housing – particularly in London – homeless families will have to make a choice between being moved miles away or squeezing into overcrowded or run-down accommodation to stay in their area. “Ministers, and local authorities adopting the policy, are likely to portray the change as one that frees up social housing for poor working families who can no longer afford to get on the property ladder, and more controversially, as a way to stop people trying to jump to the top of the council housing list by declaring themselves as homeless.

But critics have condemned the move as taking essential welfare resources away from the most needy and vulnerable and returning Britain to a pre-Cathy Come Home model of social housing provision in which local officials decide which families deserve to be given affordable homes.

New powers to enable councils to place households accepted as homeless in “suitable” and “affordable” private rented accommodation came into force on Friday. In expensive areas with long social housing lists, like London, this will mean families being housed outside their borough, and often outside the capital.

Ministers have publicly condemned councils for rehousing vulnerable families miles away from where they were settled. But privately officials accept that benefit caps and soaring rents, coupled with the new homelessness guidance, will give councils in high-cost housing areas little option but to relocate households out of their home borough.