Borderline, which supports those from north of the border who are facing homelessness in the capital, receives around half of its total income from the Scottish Government and was awarded £107,100 last year.

But bosses fear that the future of the service is now at risk after its grant was reduced to £49,184 for 2010/11.

Willie Docherty, chief executive officer at Borderline, said: “We think the Scottish Government has a duty to protect Scots who are homeless in London and may be fleeing abuse.

“There is an increasing demand for our service, particularly during the recession when people are falling out of work and they need our help to get them back on an even keel.

“A cut of 55% puts our service in jeopardy. Whether we will be able to carry on I don’t know.”

The Scottish Government funding is part of the Housing Voluntary Grant Scheme, which is awarded every year to projects tackling housing problems. A total of £2.4 million has been awarded to 29 projects in 2010/11, compared with £2.1m for the current financial year.

Borderline, which is due to celebrate its 20th anniversary next year, offers advice and support to a variety of Scots, including those fleeing from domestic abuse, former members of the armed forces who are facing homelessness, and those battling drug addiction.

Workers at the charity help to find accommodation for those in need and offer grants to help people get back into training or employment. The latest figures, for 2006/07, show that Borderline assisted two people to relocate back to Scotland every month.

The charity, which is the only project operating outside Scotland to receive funding as part of the Housing Voluntary Grant Scheme (HVGS), also assists people to settle in London.

Mr Docherty said: “My understanding is that what the Scottish Government is not happy doing, despite the fact they have been happy for the last 10 years, is funding relocation in London. That to me, is about a change in Government policy.

“People will have come to London either to get away from something in Scotland in the hope of starting a new life. There is still the notion that the streets of London are paved with gold. They are not. They end up far more isolated and vulnerable than if they had stayed in Scotland.

“For some, going back to Scotland is not the best option, perhaps because of domestic violence. But at some point in the future they may go back.”

Several new applicants to the HVGS have been given funding by the Scottish Government for 2010/11, with £34,721 being awarded to Quarriers in Bridge of Weir and £38,809 to the Calman Trust in Inverness.

Other grants include £274,000 for the Scottish Housing Advisory Service, £200,000 for Shelter Scotland’s housing law service and £40,000 for the Legal Services Agency in Glasgow.

Mr Docherty said it had already been forced to cut costs at

Borderline by between 30% and 40% last year and the charity had approached Government officials with an alternative proposal to reduce funding over three years to help ensure its future.

“If they gave us the opportunity to restructure the charity over three years we would reduce our dependence on Scottish Government funding,” he said.

“We need time to do that and by the end of three years we would be in a different position. We cannot do it in one fell swoop of 55%. That is just ridiculous.”

A Scottish Government spokesman said: “Borderline has received in excess of £1.2m from the Scottish Government since 1999. There was unprecedented demand on the grant scheme this year.

“The priority, we decided, was to help homeless Scots return to Scotland. For that reason, Borderline was awarded funding.”

‘Borderline never gave up on me’

James* moved to London from the west of Scotland at the age of 17, after suffering from physical and verbal abuse throughout his childhood.

He worked as a security guard before returning north of the border to study.

He was then employed by a large engineering company for 10 years, during which time he would often travel around Europe for up to six months at a time.

He began to encounter problems when his marriage broke down. He worked for various other companies but started to drink heavily and eventually lost his job, which in turn led to him becoming homeless.

He also attempted suicide on several occasions. “It was the worst time in my life and it all happened so quickly,” James said.

He moved to London and was living rough on the streets of the capital when he came into contact with workers from Borderline, who referred him to a hostel. He has since suffered from mental health problems and has continued to receive help from Borderline, being placed into four different projects through the charity.

James, who has now settled into another hostel, told the charity: “I couldn’t have got where I am today without Borderline being there for me over the years.

I really appreciated that you never gave up on me and that you dragged me out of the gutter.”

*Name has been changed. Case study taken from a report on Borderline’s work by Shelter, published in November.