Disabled and elderly people have been refused grants for vital repairs to their homes after Oxford City Council mistakenly spent the money - despite being legally entitled to the cash.

The council gives £1.2m to private homeowners and landlords every year, with part of the funding coming from the Government.

Some of the grants should be paid automatically to the disabled and other priority cases including the elderly, but the rest are discretionary and are paid depending on an applicant's means and individual circumstances.

The council has launched an inquiry after councillors heard yesterday that cash for mandatory grants had run out halfway through the financial year.

They are awaiting the results of the inquiry before deciding how best to pay for unpaid statutory grants.

The council's executive board was told homeowners had been incorrectly told they were not eligible for grants for window repairs, central heating, new boilers and insulation. It is not clear how many people had been misinformed by environmental health department staff.

One Marston resident complained to ward councillor Mary Clarkson. A constituent of Oxford West and Abingdon MP, Dr Evan Harris, had also protested.

After the meeting, Cllr Clarkson said: "It's wrong that members of the public, including the very vulnerable, have been misled.

"I was contacted by an elderly resident in New Marston, on behalf of his disabled daughter.

"She wanted a grant for a boiler replacement and was told she could not have one, when the money should have been given automatically."

Cllr Clarkson added that the woman has two children, aged eight and eight months.

In a letter to Cllr Clarkson, the woman's father wrote: "Her boiler is very old and British Gas, who service it, have said they are unable to get spares. It keeps breaking down. Being without water and heating is not ideal with two young children."

John Copley, head of environmental health, told the meeting: "We have been telling members of the public that we cannot give them a guarantee that their requests will result in a successful application."

He said staff followed council policy, but Alex Hollingsworth, leader of the council's Labour group, said he was not aware such a policy existed.

Cllr Hollingsworth said: "Surely it is common sense that staff pay mandatory grants before they pay discretionary grants. It's a disgraceful situation.

"The Government makes extra resources available for the payment of discretionary grants, which is perhaps why this type of grant is being paid out first."

Marion Headicar, chief executive of the council, was very concerned. She said: "This should not have happened."