Are the Government's welfare policies creating more homeless people?

A homeless person is a grimy, smelly, uncombed individual, with dirt ingrained in their fingers, whose life does not look much beyond an unsavoury sleeping bag, an arrangement of cardboard boxes and an anxiety as to where the next drink is coming from. Wrong. Do not be deceived by Mariana. She is a beautiful young woman with the natural grace of an Indian princess. She has an easy open charm and a ready smile. But she is homeless.

We are sitting in a hostel in central London. Hers is the classic homelessness story. "I got thrown out of home when I fell pregnant. I was 19," she says. "My family weren't happy." Her father is Asian, her mother is white, though she became a Muslim when they married. "We're not a religious family. No one prays in the house; everyone drinks." But they made it clear she was giving her religion a bad name. "They told me to get rid of the baby or I wouldn't be allowed back in the house."

For the next two months she slept at her boyfriend's house. "His mum was supportive. We'd been in a relationship for three years. But then one day she came into my room at 5am and said she'd changed her mind and that I had to get an abortion. 'I can't afford to support you,' she said. My boyfriend was 25 but he did whatever his mother said. No backbone. That finished him for me." She had the abortion and moved out.

"At first I slept on friends' sofas, moving on when they got fed up of me. Then I slept rough in a roof space. I felt alone. In the end none of my friends were there for me. Everything came tumbling down at once. I developed serious depression."

Mariana is one of the lucky ones. She stumbled across the number of a housing charity and rang it. The staff there found her a bed in a hostel in Soho. "It was horrible. Really grotty. Full of smoking, drink and drugs. But someone there referred me to the Cardinal Hume Centre, which runs a hostel dedicated to young vulnerable people between the ages of 16 and 21."

That is where she is today, along with 31 other homeless youngsters. Now she has a dedicated support worker helping her get her life straight and look for a job. She is also receiving medical care for her psychosis. "There is so much support here," she says happily. "Now I can look ahead." We shall return to Mariana later.

Homelessness, which had been on the decline in Britain for the past 15 years, is on the rise again, thanks to the recession and the policies of the Coalition Government. People sleeping in doorways – a familiar sight in the Thatcher era – are returning. Central London is the magnet for them. On average 1,600 people sleep out in the borough of Westminster each year. On any given night, between 100 and 200 people sleep on the streets.

Those who find their way into hostels are replaced by the 65 new rough sleepers who arrive every month. According to The Passage, which runs London's largest voluntary sector day centre for homeless and vulnerable people, 3,673 slept rough in London last year – that's not far off double the number in 2008-09. It gives Westminster the undesirable title of the most popular place for rough sleeping in England.

Conservative-controlled Westminster City Council has threatened to respond to this by making it illegal to lie down in the street – and by banning the charity soup runs which it says encourage homelessness and anti-social behaviour like begging, drinking, littering and urinating in the streets of the capital's poshest residential areas.

In March it drafted a bye-law to outlaw street-sleeping and ban soup runs from places like the piazza around Westminster Cathedral. Food distributions there draw people from outside the borough who should be helped elsewhere, it complains.

The move outraged the charities and churches which feed the destitute. The civil liberties watchdog Liberty protested that "criminalising the homeless and making it harder to get food is positively 19th century". It failed to address the root causes of homelessness and would only displace homeless individuals elsewhere.

The council has now agreed to defer the bye-law and has given charities until next month to come up with proposals to link their soup runs with support services to get people into hostels, help them find a job and deal with the mental health issues which burden at least a third of those who sleep on the streets.

But if they do not, the bye-law could still come in. "Depending on the outcome of these discussions it might, regrettably, still be necessary to pursue the legislative route," says Councillor Daniel Astaire, Westminster Council's cabinet member for society, families and adult services.

Talk about getting the homeless into hostels is well and good but there is another problem. Hostels are being axed in the Coalition's public spending cuts. "The numbers turning up at soup kitchens and day centres are increasing," says Alastair Murray of the lobby group Housing Justice. "And yet at the same time the number of bed spaces is going down. They fell for the first time last year. And day centres and advice services are closing."

The Government's official Survey of Needs and Provision on homeless services nationwide reveals that cuts are already biting. Half have seen their income cut. At least 1,169 hostel beds have gone. Some 77 per cent of accommodation services have no empty beds on an average night. And 26 per cent of hostels are turning homeless people away. Drug services are down 6 per cent and homeless health services have been cut by 4 per cent. "We could fill our beds four times over," says Cathy Corcoran, director at the Cardinal Hume Centre.

Yet rough sleeping is only the tip of the problem. Britain is beset by a hidden homelessness – people sleeping on friends' sofas, living in squats, drifting between hostels, young women offering sex in return for a bed for the night – which a survey by Crisis suggests is a far bigger phenomenon than on-the-street homelessness. As many as 62 per cent of the 437 people it surveyed in day centres were "hidden homeless".

One man, Harvey, "sofa-surfed" with a different friend each night once a week. "I used to meet up with different friends different nights, go back and early morning I'd be gone. I used to tidy everywhere, to say thank you," he said.

But a great wave of homelessness of a different kind is about to break. The Government has introduced changes which could force thousands out of their homes in central London over the next 12 months. Families on low incomes or benefits who currently get their rent paid in full will find that housing benefit cut. If they can't make up the shortfall they will have to move house.

The measure is a ticking homelessness timebomb. It was supposed to be introduced in April but the Government has given tenants a nine-month "period of grace" before it kicks in. The impact will be gradual, from January 2012, because tenants all have different days for the annual renewal of their housing benefit agreement.

The idea, according to the Prime Minister, is that people "out of work, or on a low wage, and living in an expensive home in the centre of a city" will be prompted by the benefit cap to make "the decision to go back to work, or take a better paid job [or] move to a cheaper home, in a different part of the city, in order to escape benefit dependency". Only "a very small proportion of people may have to move", says Lord Freud, Minister for Welfare Reform.

It is intriguing that David Cameron thinks a poor manual worker has the ability to simply make "the decision" to take a better paid job. But what most concerns housing charities is Lord Freud's "very small proportion". Westminster Council has some 5,117 households currently receiving housing benefit above capped levels.

Tory ideology suggests that landlords will bring rents down to meet the reduced benefits. Fat chance, says Cathy Corcoran. Research conducted by the National Landlords Association suggests 84 per cent of landlords will not consider cutting rents. Instead they will replace existing tenants with people who are not on benefits. The rental market in London is buoyant enough. Westminster Council helpfully provides a list of postcodes on its website to which people can move to find cheaper rents.

Alastair Murray, at Housing Justice, wants all this scrapped. He'd prefer the Government to introduce rent regulation to stop landlords overcharging. "It works in Europe," he says. But few homelessness charities think that politically realistic.

What is happening instead is that inner London councils have begun booking rooms in outer London boroughs like Lewisham, Greenwich, Croydon, Bromley and Bexley, and also in towns such as Luton, Watford, Slough, Reading and even Eastbourne and Hastings. Rents are much lower there. The plan is to export the poor from the capital in what the Mayor Boris Johnson has warned would be an unacceptable "Kosovo-style social cleansing" which would leave the city short of people to do the low-paid jobs.

Sixteen of the 32 London boroughs are preparing for a rise in homelessness. "We're anticipating a serious increase in homelessness as these changes kick in," one housing chief told me. Nationwide, 45 per cent of councils facing spending cuts are cutting a little less from homelessness budgets to accommodate the expected surge.

And the Coalition's changes are far from over. From 2012 anyone under 35 on housing benefit will be expected to move out of even a modest one-bedroom flat and find a room in a house. One in five of those affected will be disabled, according to Crisis. From 2013 anyone who has been on unemployment benefit for more than a year will see their housing benefit cut by an extra 10 per cent.

Sparks is 38. He has made it out of the downward homelessness spiral which began with being expelled from school and following his father into a life of crime. But after he married he went straight, working in the building trade. "Then I got made redundant, the house got repossessed and my marriage broke up," he told me. Drink and drugs followed before he hit rock-bottom and went into rehab at the Cardinal Hume Centre.

"I wasted a lot of years. Drugs, drink, crime, the whole lifestyle. It's hard to turn yourself around. As you get older; you realise that that kinda life is a load of bollocks, no matter how good it seems at the time." From rehab he went to do voluntary work with young offenders. "I wanted to teach them early what I left it so late to learn." A black belt in martial arts helped his credibility and he has begun a youth work qualification. "I done a two-year course in one year," Sparks says proudly. "And I got a little one-bedroom flat. It's leaky, and in a block full of druggies, but it has the space for my kids to come and stay. When my training is finished in September there's the chance of a job with young offenders."

The problem is that the rent on the ex-council flat, now owned by a private landlord, is £350 a week. It is paid for by housing benefit. But when his annual agreement next comes up the benefit will be cut to £250, leaving him with a shortfall of £100. "No way I can make that up," Sparks tells me as he leaves his leaky little home in a block of ex-council flats, now owned by landlords and a housing association. "So I will have to move somewhere cheaper. But that will mean I'll have to spend £30 to £40 a week on travel to get to the job, which would bust my budget. So I'm snookered every way. I've done everything David Cameron asked – retraining, Big Society volunteering – and now I'm teetering on the brink of losing everything I've done to turn my life around. Why should London just be for rich people?"

Mariana finds herself in a different Catch 22. Back in the hostel she has been helped by the staff to find a place on a one-year college access course for which her eight GCSEs qualify her. Her ambition is to become a primary school teacher. Her dilemma is that, if she stays on benefits, the course will cost her £20, but if she gets a job, as she wants, it will cost £2,000. After leaving school she worked as an assistant in a shoe shop and, though she became a supervisor, the kind of job she can now expect to get will pay under £1,000 a month, take home.

She does some maths. "It's £500 a month rent here, £100 a month I owe a debt collector, £100 for food, £160 for travel... I think I'm going to be in debt for the rest of my life. It puts a lot of stress on your mind. It makes university and all those tuition fees and living expenses seem utterly impossible."

Mariana, you will recall, is one of the lucky ones.

Some names have been changed in this piece.