The behaviour of some of Britain’s biggest property owners has been criticised as morally indefensible by the government after ministers were forced to launch a £200m taxpayer bailout to fix combustible Grenfell-style cladding on private residential towers around England.

James Brokenshire, the housing secretary for England, announced he was diverting public money to make safe about 20,000 high-rise homes, in an embarrassing defeat for the government after a months-long standoff with property firms where many refused to pay.

Brokenshire’s plan immediately ran into internal opposition when Melanie Dawes, his most senior civil servant, said it was bad value for money for the taxpayer and regressively diverted money to richer parts of the population. She said: “The public benefits of the scheme do not outweigh the costs of this transfer … the proposal does not meet the normal tests of value for money.”

The government conceded on Thursday that, despite repeated ministerial threats, the owners and developers of 92 high-rise buildings in England had refused to pay to replace the kind of cladding that helped spread the fire at Grenfell Tower, killing 72 people.

Brokenshire voiced anger in parliament at property owners “dragging their feet” and failing to take responsibility. He said it was “not morally defensible” that leaseholders find themselves vulnerable through no fault of their own.

One of the companies that has refused to pay is ultimately owned by the family trust of the multimillionaire property mogul Vincent Tchenguiz. Viscount Astor, David Cameron’s brother-in-law, is a partner in another firm that manages the freeholds – on behalf of UK pension funds – of tower blocks which have not yet been fixed.

Citistead, the Tchenguiz-linked company that owns the freehold of Northpoint in Bromley, south London, which is covered with the now-banned cladding that leaseholders have been told they could face bills of £70,000 to replace, last year dismissed government attempts to shame freeholders into paying as “a hollow threat”.

On Thursday William Procter, its director, said his company would try to access the taxpayer fund but that Brokenshire’s claim of freeholder inaction was unfounded and “we have committed considerable time and resource to date”.

A spokesman for Astor’s company, Long Harbour, said the firm understood the need to remove the cladding promptly and had been exploring avenues including building warranties and insurance policies, and was in talks with government officials about the new fund. It has also provided interest-free loans to cover costs of interim fire safety measures.

Brokenshire did not name property companies that have refused to pay but praised those that have, including Taylor Wimpey, Legal & General, Mace Group, Lendlease, Barratt Developments and Aberdeen Standard Investments.

The shadow housing secretary, John Healey, said the release of funds was welcome but accused the government of being “frozen like a rabbit in the headlights in the face of these post-Grenfell problems”.

Referring to the latest government figures for removals of similar cladding to that at Grenfell, he said eight in 10 affected blocks in England had not had their cladding replaced and work had not even started on more than half.

“Why on earth have they had to wait for nearly two years,” Healey asked Brokenshire in the Commons. “For two years they have had their lives on hold. And how long will thousands more who are living with non-ACM cladding have to wait.”

The fund will only pay for aluminium composite cladding to be removed, despite fears over the combustibility of other materials such as high-pressure laminates, which are due to be tested within weeks by government-appointed fire experts.

A spokesperson for UK Cladding Action Group, which represents leaseholders, warned people who live in blocks with other forms of unsafe cladding and internal fire safety defects will be excluded from the bailout and that the costs of interim fire measures such as waking watch patrols are not covered.

“This inadequate response will be looked back on in shame when the next Grenfell tragedy occurs,” the spokesperson said. “The announcement effectively brands this a cladding lottery. Some people win, but many still lose and are mortgage prisoners.”

Grenfell United, the group for survivors and the bereaved that has also been campaigning for money to be released for private tower blocks, met Theresa May at Downing Street last night before the announcement and welcomed the move as a “small step”.

A spokesperson for the group said: “Today’s announcement offers hope to people in dangerous blocks that the nightmare they have been living for nearly two years is almost over.

“This result is a testament to residents themselves, in social and private blocks, who refused to be ignored. The truth is we should never have had to fight for it. It is not a quick fix so we ask the government to also consider what financial support can be put in place while residents continue with night watches and wait for remediation works to start.”

• This article was amended on 10 May 2019 to make clear in text that – while the property firms may be UK-wide – the minister, and the fund, cover England only.