It seems as though the governmental vultures are out in force, circling over the badly mauled body of the welfare state. A day rarely passes when a minister does not lecture us as to what he will do when he gets his hands on the feckless and dependent. Not satisfied with capping housing benefit, time-limiting social housing tenure and stripping many of incapacity benefit, the government now appears intent on questioning who the homeless actually are.

Welfare minister Lord (David) Freud has called for a reinterpretation of what it is to be homeless. Homeless charities and political advocates say this looks like a sleight of hand. They see it as part of the preparation for the chaos that will descend on local authorities when housing benefit capping starts causing real hardship. Why not rewrite the rules and move the goalposts, the thinking may run – reduce the categories of homeless so that when the chaos does start, local authorities will have less grief to face?

Are people homeless because they live in overcrowded conditions? Or because they live in substandard conditions? Or because they are vulnerably accommodated and could become homeless? These are the categories Freud wants to banish from the legal definition of homelessness. The concept was widened in 1986, with local authorities having a statutory duty to house those made homeless.

We do need change, though. We need a change in our understanding of what homelessness is. And that it is not just the lack of social housing. Most of the homeless who fill our hostels and who are moved into social housing are not simply people who lack a roof: they lack nurture, family, mental wellbeing, education and purpose. That is why many of them get stuck in hostels or social housing, and live a kind of homeless street life indoors.

If Freud wants to redefine homelessness, he should do so for the benefit of the homeless. He needs to put energy into increasing the mental wellbeing of the homeless so that they can get out of the system, not be expensively warehoused in a half-transition from street to society.

Unfortunately so many homeless groups are strapped for what you might call the transforming cash. They get the building and some support, but they don't get the money to turn a deeply hurt human being into someone who can function independently.

Suppose you were told by your doctor that you needed a serious operation. You go to the hospital and are shown your bed. Then you are shown how to use the phone, how to watch television and asked what you want for breakfast. The next day is the same, and the day after. After a few months a nurse comes to you and says you're going home tomorrow. But, you protest, you were supposed to have an operation. "Oh," says the nurse, "we can't afford that bit. But we can do the rest."

That is the major problem homeless organisations face: they need help to get people out. They need the churn, the movement of damaged people to cured people. And if that was done systematically it would be much more cheaply than the current half-support.

More than anything, we need to invest in the mental wellbeing of the homeless so they can say goodbye to it. Warehousing in hostels or social housing does only part of the job. Freud would be wise to look more deeply for answers to homelessness: superficial recategorisation is not an answer, except as a means of getting local authorities off the hook.

Change is coming. But the best possible change would be to recognise that economically it is better to cure than it is to warehouse. Let us hope Freud will listen to reason and support the homeless sector to help people out of homelessness. And save some dosh in the process, of course.