SOCIAL FUNDING
Just what is the Government planning for the Social Fund? It makes loans and grants to the poorest households in society – pensioners, disabled people, and single parent families who rely on means-tested benefits such as pension credit and income support.
At the moment the loans are interest free and repaid over time by deductions from benefits. But a consultation paper picked up by the press this weekend proposes to charge interest at nearly 27% on the budgeting and crisis loans made to more than a million people each year. It says
"We are seeking views on [allowing] some credit unions…to take over the provision of credit to social fund customers…interest would be charged in return…but this would be at an affordable rate…we propose to set it at the maximum charged by Credit Unions of 2% per month (26.8% APR)." (The Social Fund: A New Approach para.3.3 and p.12)
The protest against charging this usurious rate of interest on loans to some of the poorest in society was launched by the Mail on Sunday. It reported the plans under the heading ‘Gordon the Loan Shark’ closely followed by The News of the World and the Daily Express.
Within hours junior Work and Pensions Minister Kitty Ussher was sent round television stations apparently denying that the Government intended any such thing. She told BBC News
"We are absolutely not proposing to charge interest on social fund loans ... I think that would be the wrong thing to do."
But in fact the Minister was not denying the contents of the paper. As she made clear when she launched it loans could be provided by "a variety of external organisations including but not limited to charities, debt advice and credit unions…to make our service even better, making affordable credit available to more people and providing greater financial advice and support in difficult economic times."
In other words the loans now made to poor households would be transferred to the private sector and would no longer be social fund loans. So interest could be charged on them without contradicting what she said. And saving the Government the £632 million currently lent by the Fund.
And the plans go further. Kitty Ussher’s boss Secretary of State James Purnell makes clear in his introduction to the paper that he wants to convert some of the grants given to 247,000 people a year into loans – saving up to £139 million a year. He writes "A single loans system could also cater for some of the needs now met by community care grants."
So expect to see new proposals in the New Year to allow credit unions and others to lend money to people on means-tested benefits at interest rates of 26.8% with the repayments deducted directly from benefits. There would indeed be no interest charged on Social Fund loans. Because they would no longer exist. And there would not be many grants either.
Merry Christmas.
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