The charity had been in talks with the Home Office to set up the pilot scheme, which was to be the first to use new laws requiring failed asylum seekers to work for their benefits.
Richard Capie, head of external communications at YMCA England, said: "We have decided not to proceed with the compulsory community service scheme, which we planned to run in Liverpool. This follows extensive consultations with groups and agencies in the city, including the police, citizens advice and the voluntary sector.
He added: "We recognise that the compulsory nature of the community service scheme will not be feasible and we haven't signed the final contract with the Home Office."
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