The proceeds of tenancy fraud could be reimbursed to social landlords rather than confiscated by the State, the Housing Minister said today.

Grant Shapps also vowed to give local authorities greater powers to investigate possible fraud, with councils able to oblige banks and utility companies to provide access to data. Currently, such organisations can refuse to comply with a request, the minister said.

The announcements were included in widely-trailed proposals for a new criminal offence for the unlawful subletting of social housing.

The minister said the offence would attract a maximum sentence of two years’ imprisonment and a fine of up to £50,000 if the case goes to the Crown Court.

The Department for Communities and Local Government claimed that “tenancy cheats” could earn thousands of pounds a year renting their social homes out to private tenants – “but if caught, may currently face no greater penalty than losing their tenancy”.

It cited estimates that between 50,000 and 160,000 social homes are currently being unlawfully occupied across the country.

Grant Shapps said: "Tenancy cheats are taking advantage of a vital support system for some of the most vulnerable people in our society and getting away with a slap on the wrist while our waiting lists continue to grow. It's time for these swindlers to pay the price.

"It would cost us billions of pounds to replace the huge number of unlawfully occupied social homes across the country. Meanwhile tenancy cheats can earn thousands of pounds letting out their property, which was given to them in good faith and which could instead be offering a stable home to a family in need.

"The proposals I've announced today would not only deliver justice to these fraudsters, but will also act as a deterrent to those who think they can earn a fast buck from this precious resource. I want everyone to know that our country's social homes are going to those in genuine need, not providing a 'nice little earner' to someone who could afford to live elsewhere."

Local authorities have already successfully prosecuted tenants for unlawful sublettng, however. Last year Camden Council became one of the first local authorities to prosecute a council tenant for housing fraud under the Fraud Act.

Oladapo Talabi pleaded guilty at Highbury Magistrates Court on 1 September 2011 to two counts of fraud. He had been prosecuted under sections 1 and 3 of the Fraud Act for failing to disclose information to make a gain and exposing the council to loss.

The defendant was given a community order of 12 months comprising 100 hours unpaid work and ordered to pay the council £750 in costs.

Philip Hoult