Birmingham City Council has paid more than half a billion pounds of housing benefit to landlords that have been named and shamed by the industry watchdog.

The hand-outs were made over the last four years to 18 accommodation providers that have been called out for poor behaviour by the Regulator of Social Housing (RSH).

It includes money for so-called “exempt accommodation” which is meant for people with nowhere else to go – including rough sleepers, those with mental health issues and victims of domestic violence.

On Wednesday, an investigation by openDemocracy and The Independent revealed how exempt accommodation providers across the UK had been given millions by local councils. In some cases, the “non-profit” organisations had then channelled large sums of money into commercial firms linked to their own directors.

Birmingham City Council – which is the UK’s biggest local authority – has now admitted it paid £555m to a list of exempt accommodation providers which had been rapped by the regulator. However, the sum also includes money for other types of “general needs” housing provided by the same organisations.

This means the eye-watering sums are not comparable with national figures that were revealed on Wednesday by openDemocracy and The Independent. But in each case, the housing providers have come under fire from the regulator.

In one example, Birmingham City Council gave more than £161m to Reliance Social Housing in just four years.

The provider, which is chaired by former headteacher Mohammed Sajjid Sarwar, was slapped with a regulatory notice by the Regulator of Social Housing watchdog in October. It accused the company of transferring “a very significant amount of the rent and service charge income it receives to third party managing agents on an ongoing basis”.

The watchdog added that Reliance had “failed to ensure that it has effective governance arrangements in place”.

“There is a risk of third party managing agents not providing the services being claimed… The regulator has not received sufficient assurance that the arrangements entered into by Reliance are not inappropriately advancing the interests of third parties or that taxpayers’ interests and the reputation of the sector are being safeguarded.”

Earlier this year, it was reported that Reliance now houses a third of all exempt accommodation claimants in Birmingham, despite being rapped for being "non-compliant".

Reliance Social Housing told openDemocracy and The Independent that it had “implemented a robust action plan to ensure it is fulfilling strategic objectives and regulatory compliance to the satisfaction of the Regulator for Social Housing”. It added that it had an “open and transparent” dialogue with the regulator and Birmingham City Council to ensure standards are met.

Another provider, Sustain (UK) Ltd, has received £87.5m in housing benefit from Birmingham City Council since 2018/19, which includes money for exempt accommodation.

On Wednesday, we revealed how the watchdog had issued a regulatory judgement against Sustain in 2019, saying the provider “does not meet our governance requirements”.

The regulator said: “Inherent conflicts of interest had arisen as a result of related party transactions to companies owned by Sustain’s executives,” adding that there was a “lack of assurance” that the issue was being addressed properly.

Despite this, Sustain went on to pay £2.3m to private firms linked to two directors – Adam Barwell and founder and ex-CEO Pauline Hughes – in 2020 and 2021.

Their high salaries were highlighted by Inside Housing in 2020, with the pair banking £215,000 in the year ending March 2019. They have both since resigned and did not respond to requests for comment. Sustain also did not respond to a request for comment.

Labour MP Clive Betts, who is leading a parliamentary inquiry into exempt accommodation said taxpayers were being “ripped off” and vulnerable people were “at risk”.

“It’s clearly a system that’s failing and it needs to change,” he said. “The amounts of money going to these, shall we say, questionable providers of accommodation are eye-watering.”

Betts called on ministers to act “urgently” on the issue, warning that failure to do so could lead to “vulnerable people being put at risk and public money being wasted.”

The housing charity Crisis also urged the government to take action to avoid “devastation”. Chief executive Matt Downie said: “The scale of this issue demands a joined-up and urgent response both in terms of legislation and funding from government.”

He also called for the Regulator for Social Housing to be given “clear and powerful levers” to ensure the watchdog can properly inspect the accommodation.

In a statement, Birmingham City Council said: “The amount paid out in Housing Benefit (HB) reflects the size of the sector in Birmingham and the rules and caveats under which we have to operate as a local authority. The rules around awarding HB are separate from those of the Regulator of Social Housing in terms of making payments to landlords on behalf of their tenants. A housing provider may be under investigation or sanction from the Regulator, but whilst it remains a Registered Social Landlord, HB can continue to be awarded providing the tenant is entitled to benefit.

"Individual housing benefit claims are paid on behalf of the Department of Work and Pensions under housing benefit legislation. In most cases the payments are made directly by the council to the landlord on behalf of the citizen. These cover housing related costs only, the citizens are entitled to these payments through legislation. They are payments to individuals on low incomes in need of care and support, the landlord receiving the housing benefit on the tenants behalf."