Immigration detention should be capped at 28 days, a cross-party group of MPs and peers has recommended.

Home Office officials are failing to follow guidance that immigration detention should be used sparingly and for the shortest period possible, according to the All Party Parliamentary Group (APPG) on Refugees and the APPG on Migration.

The UK is the only country in the European Union not to have an upper time limit on detention, the group said in its report, and the panel added that the lack of a time limit has significant mental health costs for detainees, as well as considerable financial costs to the taxpayer.

The UK government should look at alternatives to detention including allowing individuals to live in the community, the MPs and peers said.

The panel, which included a former cabinet minister, a former chief inspector of prisons, and a former law lord, considered evidence over eight months. APPGs are informal cross-party groups that have no official status within Parliament.

Conservative MP David Burrowes, a member of the inquiry panel, said: “This inquiry is an unusual one. Immigration is on the political agenda but rarely do we unite on a cross party basis and consider the issue of immigration detention.

“The lack of a time limit is resulting in people being locked up for months and, in some cases, several years purely for administrative reasons.

“While there is a need to properly control our borders, people who arrive by fair means or foul must also be treated with dignity and respect throughout the immigration process.

“The current system is failing to sufficiently do this and our report calls for an urgent rethink. We should follow the example of other countries where rates of detention are much lower and removal rates much higher.”

Women who are victims of rape and sexual violence should not be detained and that pregnant women should never be detained for immigration purposes, the group recommends.

Current Home Office policy puts the health of detainees at serious risk, the panel added.

It also recommended that screening processes are improved to ensure that victims of trafficking are not detained.

Sarah Teather MP, chair of the inquiry panel and Liberal Democrat MP for Brent Central, said: “The UK is an outlier in not having a time limit on detention.

“During the inquiry, we heard about the huge uncertainty this causes people to live with, not knowing if tomorrow they will be released, removed from the country, or continue being in detention.

“As a panel, we have concluded that the current system is expensive, ineffective and unjust. We are calling the next Government to learn from the alternatives to detention that focus on engagement with individuals in their communities, rather than relying on enforcement and deprivation of liberty.”

Paul Blomfield MP, vice-chair of the panel and Labour MP for Sheffield Central, said: “Current Home Office policy is that detention should be used as a last resort and for the shortest possible time.

“From the evidence that we heard, Home Office standard practice falls well short of this policy.

“In our report, we recommend that far fewer people should be detained, that detention should always be a last resort, and that it should only ever be for a maximum of 28 days. Other countries manage to maintain immigration control without resorting to indefinite detention. So can we.”

Refugee Council chief executive Maurice Wren said: “Today a bright light has been shone into the darkest corners of the British immigration system and it has revealed some unpleasant secrets.

“Quite simply, the British Government is detaining too many people for too long.

“In the current system, asylum seekers who have done nothing wrong find themselves arbitrarily placed behind bars, on the say so of Home Office civil servants, for one primary reason: because it’s politically expedient.

“Ministers must take this opportunity to pursue wholesale reform and abandon the existing structure of immigration detention which has been shown to be grossly inefficient, hugely expensive and in direct contradiction of our most cherished British values of justice, liberty and compassion.”