The local government financial settlement saw ring-fencing removed from the£1.7bn Supporting People programme, which helps house more than one million people.
Shelter policy analyst Mark Thomas said: “The concern is that funding will be diverted away from groups that are less politically popular, like those dependent on drugs or alcohol or the homeless.”
Mr Thomas said the charity was now pinning its hopes on councils using local area agreement targets which reflect the needs of vulnerable groups. But he said “the jury is out” on how successful these may be.
St Mungo’s executive director of operations Mike McCall also expressed concern that funds would be used elsewhere. He said: “We want the money to be spent as intended and we need to work with local authorities to ensure those on the margins of society continue to receive the services they need.”
But the decision has been welcomed by the Local Government Association .
David Rogers (Lib Dem), chair of the LGA community wellbeing board , said: “Focus can now begin to shift from monitoring how much is being spent to actually achieving better results.”
The move was announced by local government minister John Healey as he confirmed a 4.2% funding increase for English councils next year.
Mr Healey conceded that the settlement was tight and senior local government figures said they expect services cuts.
Hounslow LBC finance director Stephen Fitzgerald said: “It is still extremely tight. The reality is that if councils want to keep their council tax increases to a minimum, they are going to need to make significant savings and find innovative efficiencies to protect front-line services.”