Claims the “Big Society” will come to the rescue of cash-strapped public services have been questioned after a project which helps keep 35,000 vulnerable people off Birmingham’s streets had its budget cut by £16.6 million.

The Supporting People programme, which is funded by Whitehall but administered by Birmingham City Council, will lose a third of its money this year.

The scale of the reduction shocked third sector leaders in Birmingham, who described the cut as “brutal and short sighted”.

Jean Templeton, chief executive of St Basils, a charity which provides shelter for homeless young people, warned that, by removing so much money from voluntary groups, the Government would pile up future problems for councils.

She argued that Supporting People was highly successful at taking the pressure off statutory services, such as housing and social care, and played a vital role in preventing vulnerable people from becoming reliant on “high level and very expensive care”.

Ms Templeton told a scrutiny committee that the budget reduction was far harsher than expected and that voluntary groups had been given little notice.

It was thought initially that Supporting People would lose £12.8 million, about a quarter of its budget. But the figure was recently increased by a further £3.8 million.

“We are desperately trying to support vulnerable people in this city, so we were very taken aback at the size of the reduction,” she added.

Brian Carr, chief executive of Birmingham Voluntary Service Council (BVSC), said the speed at which the cut had been ordered was “disturbing”.

He added: “We always expected there would be savings to be made, but the pace of this is very worrying.

“Our members are very clear that they are not immune from the cuts.

“But what we are finding is that most public bodies are reducing funding in a way which does not take account of the potential long-term cost.”

Mr Carr added that, although voluntary organisations in Birmingham were feeling the squeeze, the sector was still worth £28 million to the city’s economy.

Half of 200 groups surveyed by BVSC reported that their funding streams had been cut in the past year, he said.

At the same time, 65 per cent of groups were experiencing a significant increase in demand for their services, while requests to BVSC for help had risen by 175 per cent in two years.

Mr Carr said the third sector would have to find more innovative ways of raising money given the likelihood of further cuts to public sector grants.

But he warned it was not proving easy to find generous donors.

“We need to try to find philanthropists, but wherever we look we discover this sort of money is not as readily available as you might think,” Mr Carr added.

He called for closer co-operation between Birmingham City Council and the voluntary sector during times of financial hardship.

Scrutiny committee member Coun Steve Bedser (Lab, Kings Norton) said: “I am appalled at the additional cuts imposed on Supporting People, a programme which by investing a relatively small amount of cash in the voluntary sector saves money for local authorities at a later stage.

“There is an argument that we should be giving more money to the voluntary sector, not less.”

Elaine Elkington, Strategic Director - Homes and Neighbourhoods, who is also the chair of the Supporting People Commissioning Body Programme Board for Birmingham, said: “We have been working with third sector organisations and the provider market for some time to consult on savings proposals for the next three years, and the strategic approach to budget reduction has actually been praised by Birmingham Voluntary Services Council.

“However, in light of the judicial review which has led the council to propose the continuation of adult social care for those with substantial and critical needs, the council now has a budget gap which other service areas must help to cover.

“We have, therefore, been asked to look again for further efficiencies in the Supporting People programme but it must be stressed that at this stage we are only consulting on proposals and are keen to hear more from providers and service users before any final decisions are taken.”