More than 700 people in Liverpool are to share in a £400,000 rebate because of a government gaffe over the bedroom tax.

The awards will largely be around the £560 mark, and should be given to tenants in the next couple of weeks.

The loophole in the coalition’s highly controversial “spare room subsidy” deduction meant that anyone who had been resident in the same house since 1996 and receiving housing benefit all that time should have been exempt from having to make up the difference in their rent.

The Liverpool news follows the recent discovery that up to 600 households in Wirral could be entitled to a rebate.

Mayor of Liverpool Joe Anderson said: “I promised to do everything in my power to make sure that any Liverpool resident who has been wrongly affected by this government error gets back every penny they are entitled to.

“I have been delighted with the willingness of our social landlords to work with us to identify exempt tenants and to put any bedroom tax legal action on hold, while these assessments are on-going.

“At a time when so many local people are struggling, it’s more important than ever that we work together to support them.

“Thanks to these efforts, more than 700 Liverpool tenants will be better off. And there may be more to come – we’ll be working hard in the coming weeks to review 1,000 more cases.”

On top of the initial 700 cases, officers are reviewing another 1,000 cases to see if they are entitled to cash back.

If so, the government could find itself paying back more than £1m to Liverpool families alone. Individual homes who were judged to have one or more spare bedrooms have been hit with a reduction in housing benefit of up to 25% in some cases.

But there have been high profile cases of people who have argued that their “spare” rooms were actually necessary to store medical equipment or be used for carers to stay over.

Two rent tribunal rulings have recently found that the government was wrong to deduct housing benefit from people for those reasons. But the loophole is not about human error but a glitch with a new computer system that has been brought in to help introduce the new Universal credit system.

It has caused high-level rows between government departments, but ministers have vowed to close the loophole by April, one year after the tax was introduced.

But until then, tenants will be exempt if they have been continuously entitled to housing benefit since 1 January 1996 (with breaks of four weeks or less are ignored), and were under 45 years old in 1996.

They could also be in line for a rebate if they have occupied the same home since that date except for any period where a fire, flood, explosion or natural disasters made the property uninhabitable.

More than 30,000 people on Merseyside are affected by the tax, facing an estimated bill of £16m a year.

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