Housing groups and charities have been left ‘deeply disappointed’ after the High Court dismissed a legal challenge to the government’s bedroom tax.

David Orr, chief executive of the National Housing Federation, said the policy is unworkable, while Campbell Robb, chief executive of housing charity Shelter, said the ruling was ‘devastating news’.

The judicial review of the government’s social housing under-occupation penalty was brought by 10 families with disabled or vulnerable children. They argued the penalty, which reduces housing benefit payments for social housing tenants that are deemed to have spare rooms, discriminates against claimants who are disabled or have disabled family members.

“This judgement does not change the fact that the bedroom tax is a flawed and unfair policy that won’t achieve what the government hopes it will. The only fair solution is to scrap this policy now.”

David Orr, chief executive, National Housing Federation

The court ruled the government’s policy, which came into force on 1 April, is lawful. However Lord Justice Laws, sitting with Mr Justice Cranston, also said new laws must be introduced to provide for disabled children affected by the penalty.

Lawyers acting for the families said the ruling meant the government must now act ‘very speedily’ to show there would be ‘no reduction of housing benefit where an extra bedroom is required for children who are unable to share because of their disabilities’.

Richard Stein, from solicitors Leigh Day, said the families were ‘bitterly disappointed’ by the decision, although they welcomed the ruling that the government must introduce new measures to protect children.

‘We, along with the other lawyers acting on behalf of adults with disabilities, will appeal this judgment and we remain confident that the discrimination which was recognised by the court and which has been perpetrated against our clients by this legislation is not justified and is unlawful,’ he said.

Mr Orr said: ‘We are deeply disappointed with the outcome of today’s High Court judgement. The fact that disabled people are being forced to take the government to the High Court to challenge the bedroom tax shows how desperate their situation is.

‘This judgement does not change the fact that the bedroom tax is a flawed and unfair policy that won’t achieve what the government hopes it will. The only fair solution is to scrap this policy now.’

Mr Robb said: ‘Shelter gave extensive evidence to the court based on our experience of how families like these are being affected, which showed that the government’s current provision to support people in exceptional cases is inadequate.

‘As a result of today’s ruling we’re really concerned that these families will now face a real struggle to meet their rent and may end up losing their home.’

A Department for Work and Pensions spokesperson said: ‘We are pleased to learn that the court has found in our favour and agreed that we have fulfilled our equality duties to disabled people.

‘Reform of housing benefit in the social sector is essential, so the taxpayer does not pay for people’s extra bedrooms.’

The DWP has today announced an extra £35 million of funding to support housing benefit claimants affected by welfare reforms in England. There is £10 million of transitional payment to be distributed by councils, £5 million for discretionary housing payments for the least densely populated areas, and an extra £20 million of additional DHPs for councils that can demonstrate they are managing their original DHP allocation in a ‘robust, fair and appropriate manner’.

DHPs are distributed by councils to help households struggling to cope with the financial pressure of welfare reform. Councils have been given £150 million in 2013/14, or which £25 million is to help with the bedroom tax.

Grainia Long, chief executive of the Chartered Institute of Housing, said: ‘The legal challenges have highlighted the problems caused by having a “one size fits all” system that doesn’t take people’s individual circumstances into account. Increasing discretionary housing support by £35 million, as the Department for Work and Pensions has announced today, is simply not the right way to mitigate the impact this policy is having.’