A major homeless charity is urging people not to give money to beggars this Christmas. The comments by Thames Reach, which provides support to more than 8,500 homeless people in London and surrounding counties every year, are likely to reignite the debate about the merits of giving cash to people who ostensibly live on the streets.

The intervention echoes comments made by the previous government's "homelessness czar", Louise Casey, who sparked a furore a decade ago when she described cash handouts to the homeless as "misplaced goodwill".

But Thames Reach is citing "overwhelming evidence that people who beg on the street do so to buy hard drugs, particularly crack cocaine and heroin". Outreach team members estimate 80% of people begging do so to support a drug habit. The research is corroborated by the results of drug tests by the police on a group of people arrested for begging in Westminster; 70% tested positive for crack cocaine or heroin.

"Giving to people who beg is not a benign act without consequences," said Mike Nicholas, a spokesman for Thames Reach. "As an organisation that has worked with people on the street for over 30 years, we have seen many lives damaged by hard drugs and alcohol misuse. We have even lost people through overdoses in situations where a significant portion of the money they spent on drugs came from members of the public giving loose change."

Wayne Morgan, 27, has been clean for two and a half years, after being on heroin since he was 14. Having been in care since he was four, he quickly migrated to mixing crack and heroin, a £700 a day habit. On a typical day in London's Piccadilly Circus, he could make between £300 and £400, mainly from tourists. Many others who begged with him at the time have since died of overdoses.

"Christmas Eve 2007 I was begging at Euston station," he said. "Some guy comes along and says "Happy Christmas" and gives me £3,000 cash. He was something to do with racehorses in Ireland. I spent the cash in three days on drugs and ended up in hospital."

Wayne hated how people looked at him when he was begging and realised "I had done nothing with my life". After checking himself into a rehabilitation clinic, he is now training to be a self-employed electrical insulator and is dismissive of people who give handouts to beggars: "People beg for a reason. It ain't for food or something hot to drink."

Thames Reach disputes the claim, often made by beggars, that they need cash to pay for a bed for the night, pointing out the vast majority of hostels do not require payment upfront. Neither are many beggars homeless, the charity says. A study revealed that only 40% of people arrested for begging in Westminster in 2005 were homeless, with most living in hostels or bed-sits.

Nicholas encouraged the public to engage with people begging on the street and to buy them food or a cup of tea. "Best of all, if you are concerned because you think they are sleeping rough, contact your local outreach team."

The charity denied accusations it was demonising homeless people. "Most people sleeping rough do not beg, and most people begging do not sleep rough," Nicholas said. "Although there are many rough sleepers with serious drug problems, the majority have not. Our overriding concern is to save lives. We want to help people to get off the street and into decent accommodation where they can get care and support."

One recent study of London's drug-using population indicated that the average age that intravenous drug users are dying in central London is now down to 31.

Tracy Isted, 40, who used heroin every day for 16 years, except for a weekend when she was in a police cell and a three-day hiatus when she was unable to score ("I lay in my own piss and shit"), recalls how one Christmas a bus driver who regularly gave her £2 when walking past her pitch in Tottenham handed her £100. "I blew it on drugs in three hours." Another Christmas she ransacked the bins of her local KFC to find food and shoplifted a bar of chocolate because she was scared that if she agreed to enter a hostel she would be moved from the set begging pitch that funded her £60-a-day habit.

She escaped her addiction when Mark Smith, an outreach worker, persuaded her to stop living rough and get medical help. It was a huge breakthrough for someone whose life was a cycle of begging, prostitution and addiction and who had spent almost two decades living in office cupboards, a tent on marshland and in a cardboard box under a railway bridge.

"Mark won my trust, he didn't talk down to me," she said. "He was very patient and I used to look forward to seeing him, sharing his fags and having a burger."

After Mark had asked her "14 or 15 times" to think about coming off the streets, Tracy relented and is now off heroin and on methadone. "This time last year I thought I would be dead. But if one person reads this and decides to stop begging and get on a methadone script, sharing my story will have been worth it."