More than 7,000 disabled and elderly people have lost some or all of their state-funded support, after cash-strapped councils changed their rules on who qualifies for social care.

In the past two years, at least 17 councils have withdrawn social care for people who they deemed to have "moderate needs". In the first two years of the coalition, 11 authorities told more than 5,000 elderly or disabled people that their care was being withdrawn, while more than 2,000 people saw their packages cut. A further six councils are cutting help in this financial year. According to council guidelines, those with "moderate" needs run the "risk [of] losing gas, electricity and water supplies", as well as "falling into debt", without support.

Campaigners warn of a "system in crisis", which leaves vulnerable people to cope without the help they had come to rely upon.

Andrew Lansley, the Health Secretary, is expected to announce changes to the care system this week in a White Paper and draft Bill on social care. These will seek to tackle the problem of eligibility criteria being suddenly changed.

He is expected to promise the biggest shake-up of social care since 1948, replacing a dozen different Acts with a single law to improve the system for carers and introduce tougher safeguards for vulnerable people. Councils will be told to provide services that meet people's needs, instead of them having to adapt to what is available. And there will be an additional £200m provided for supported housing to build 6,000 new homes for older people.

However, he risks a backlash from campaigners, charities and opposition parties by failing to reach a decision on how social care will be paid for in future. Mr Lansley will make clear he "supports the principles" of a report by the economist Andrew Dilnot, which recommended a £35,000 cap on the cost to an individual of long-term care, and a big rise in the means-tested asset threshold to £100,000. A source close to the Health Secretary said: "There isn't any money to do it now. But this is a step forward. We are saying that 'this is the approach we will take if we can find the money'."

Instead, a decision will be taken at a spending review in 2013 or 2014, delaying again the prospect of a final decision on solving Britain's care crisis. The Dilnot proposals would cost an extra £1.7bn in public spending, rising to £3.6bn by 2025.

Cross-party talks have broken down as a result of the indecision. Andy Burnham, Labour's Shadow Health Secretary, yesterday said the commitment to the principle of capping charges for care was "meaningless if there is no plan to deliver it". Michelle Mitchell, director-general of Age UK, said: "With care in crisis now, it is not nearly enough."

Instead of a final decision, Mr Lansley will only publish a progress report on the financing of adult social care aimed at addressing the problem of around 24,000 people being forced to sell their homes each year to pay for care. He will, however, announce a £200m fund to help people "downsize" when they are no longer able to live in large, two-storey homes. Some 6,000 properties will be built over five years to stimulate the supported housing market; these will have fewer or no stairs, cupboards at more manageable heights, and adapted bathrooms.

Yet thousands of people are having to adapt to life without any state help after councils changed eligibility criteria. From May 2010 to April this year, the 11 councils which withdrew their social care for people they deemed to have "moderate needs" included Liverpool, Lancashire, Somerset and Bolton, according to a series of Freedom of Information requests by TUC-backed campaign group, False Economy.

Fewer than 14 per cent of councils now provide care to those who they categorise as having "moderate needs". In contrast, six years ago, 40 per cent of councils provided services to people needing the same level of care. There are now 1.6 million people accessing social care services, down 10 per cent from 2006, despite the pressure coming from an increasing number of older and disabled adults, growing at 3 per cent a year. A False Economy spokesman said: "This has gone on under both the last government and the coalition, and councils are now looking to raise the bar for care services even higher. The result will be increased pressure on a creaking NHS and a severe human cost."

Sarah Pickup, the president of the Association of Directors of Social Services (Adass), admitted there was a "shortfall of funding" in social care – whose budgets have lost an estimated £1.89bn in funding over the past two years. She said that this "hidden price" could result in "people at the edges" being "squeezed out".

Paul Burstow, the Liberal Democrat Health minister, confirmed that the Government would be "addressing eligibility issues as part of the White Paper". He added: "We have provided an additional £7.2bn up to 2015 in recognition of the pressures on the adult social care system. This should ensure that local authorities are able to maintain current service levels."

Case studies...

'I do a lot of things for my daughter now, but as I'm in my 70s, I don't know how long I can go on'

Susie Rowbottom, 41, from Horsham, West Sussex, has Down's Syndrome, and received 12 hours social care for almost 14 years, so that she could live independently with a friend.

She got support with her finance, her medical care, housework and cooking until last year, when her care was cut to just two hours a week, under a tightening of the eligibility criteria.

Her 71-year-old mother, Kate, says: "They can't just suddenly pull the rug from under her feet. I went to visit in April and found out Susie hadn't changed her bed sheets for three months, and because she can't use the oven or grill, she now lives off microwave meals. She's not entitled to go to her weekly group anymore, where she would make cards, do writing and arithmetic. She was with her friends then and friendship is everything, especially to Down's people. I do a lot of things for her now. But as I'm in my 70s, I don't know how long I can keep on doing it."

'The cuts have attacked my son's self-worth. He spends more time alone in his room now'

Adam Duffy, 22, from north-east Lincolnshire, was born with a hole in his brain.

He suffered a stroke before he was born and another when he was 18 months old. He has cerebral palsy, learning difficulties, and severely reduced vision in one eye. He is unable to shave, can't wash his hair or tie his own shoes. Yet in February, Duffy's local authority decided he was no longer eligible for his 11 hours of weekly home care. He now receives nothing.

But Duffy's needs have not changed, and if he lived under one of 19 other councils, he would still receive care. His 63-year-old mother, Margaret, is launching a legal appeal. She says: "It made all the difference. It gave me a break and integrated him in society. We used the £138 to buy in care and the man we used was a similar age to Adam. He would support him to do things, like showing him how to shave, and cook, and they'd go out.

"This has attacked Adam's self-worth. He spends more time in his room now alone on the computer."

'They recommended I cut my long hair to save time. I feel like we are going backwards'

Mary Garland, 46, from Westminster, has Crohn's disease and also suffers from rheumatoid arthritis.

She lives alone and struggles to get out of bed, get dressed, or cook, without assistance. She received 19 hours of care a week for more than a decade, but her hours were halved last year, when her needs were downgraded.

"My situation is very stable. But now, they've decided, because I can use a special knife and fork to feed myself, I'm 'moderate'. It's infuriating. I have to pay £100 a week to top up care. They even recommended I cut my long hair to save time. I feel like we're going backwards – away from the philosophy of living independent lives."

Q&A

What's the problem with social care?

We are all getting older and old age brings more demands on social services, from home helps and occasional support to living full time in care homes.

Who pays now?

Councils decide on their own eligibility thresholds which means the level of care varies. In England, the system is means-tested, so many people end up paying for their care. Last year, around 24,000 people sold their homes to help pay for care bills. Anyone with savings above £23,250 pays for home support, below that they contribute to costs. If they have less than £14,250 in savings, it is free. If someone needs a care home place, the £23,250 threshold includes the value of their property, unless they have a partner living there. Northern Ireland also has a means-tested system and in Wales there is now a £50 weekly cap on charging for non-residential care. Since 2002, Scotland has provided free personal care, as well as nursing care for older people.

What can be done?

In June 2010, the economist Andrew Dilnot was asked by the Government to chair a commission on the future funding of social care in England. His report suggested raising the limit of savings and assets from £23,250 to £100,000. He also proposed capping at £35,000 the amount individuals should pay towards their own support, with the Government picking up the rest of the bill. The Government and Labour are now committed to a cap in principle.

So what's the problem?