The Local Government Association has claimed a key part of the government’s social care reforms could cost councils five times more than estimated, triggering a row with the Department of Health.

According to the LGA, it will cost local government £1.1bn over the next decade to run the “deferred payments” system under which elderly residents borrow from councils to pay for their care, with councils recouping the money from the sale of any estate after death.

According to DH calculations, the loans themselves would be “cost neutral” but the programme could cost £230m to administer.

Sir Merrick Cockell, the Conservative chair of the LGA, said: “The costs for running the deferred payment scheme have been massively underestimated by the government. With costs likely to exceed £1.1bn, councils are at real risk of incurring costs that they simply can’t meet.”

He called for a national organisation “similar to the Student Loans Company” to be set up to run the programme.

However, a DH spokeswoman said: “We do not recognise these misleading figures.  

“The universal deferred payments scheme will be cost neutral and we have committed to fully funding any upfront costs – so councils won’t be out of pocket as a result of the scheme.”

The LGA reached its figure using the same model as the DH, which takes into account the length of loan agreements, the expected number of applicants for the loans, demographic changes and inflation. However, its estimate of the cost of each of these factors was considerably higher than the DH’s.

A spokeswoman for the association said it stood by its figures despite the government’s response.