What to make of Labour’s attack on the Social Fund?

Do James Purnell and Kitty Ussher read consultation documents before they get sent out? I ask because of Labour’s proposals to start charging interest rates of up to 27% on loans from the Social Fund, which currently makes interest-free loans to individuals on benefits who urgently need money to buy large items such as cookers and beds.

It may possibly be the most bonkers plan yet to come from this Government. Leaving aside the complete unfairness of such a policy, in practical terms it would raise a minimal amount. The cost of providing the £770 million of interest free social fund loans in 2007-08 is pretty miniscule in the context of overall Government spending.

Once the proposals had actually come to light the government did some pretty rapid backtracking.

Government spokespeople have said that “poor drafting had given a false impression people could be charged interest on social fund loans.”

Kitty Ussher, the Minister in charge of the Social Fund, has been despatched to the TV studios to say, “”We are not proposing to charge interest on the government loans.”

So it’s worth a look at what the document actually says:

We are therefore seeking views on the merits of taking legislative powers to allow some credit unions, and similar organisations from the third sector, to take over the provision of credit to social fund customers in their areas. As well as offering affordable loans, our new partners could also offer a range of other services, such as savings accounts and financial advice, under contract to DWP. To fund the cost of these extra services, we are proposing that the credit offered under these
arrangements could attract an interest charge of 1 – 2% per month – the same criterion which applies to Credit Unions.
[Para 3.3]

Interest would be charged in return for these services but this would be at affordable rates compared to those charged by commercial lenders in the same market. We propose to set it at the maximum charged by Credit Unions of 2% per month (26.8% APR).

The annex also contains a worked example of how much a 26.8% APR would cost on the average loan.

That’s some drafting error!

There seem only two possibilities. Either James Purnell and Kitty Ussher don’t read their Department’s consultation papers before they are sent out. Or they read it, agreed with it at the time and hoped no-one would notice before the consultation closes on 23rd December.

* Hywel Morgan was ALDC’s Campaigns & Development Officer from 1997-2004.

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  • Kitty Ussher – reading things? Understanding things? She’s just a new labour machine – like Emily Thornberry with a northern accent.

  • A collossal own goal, but perhaps Kitty’s parents had a sudden moment of foresight when they named her – she couln’t have chosen it herself surely?

    One thought “The cost of providing the £770 million of interest free social fund loans in 2007-08 is pretty miniscule in the context of overall Government spending.” may be true, but it would pay for quite a few policemen, teachers, nurses etc. It would be interesting to know what proportion of these loans actually get paid back.

    P.S. Wikipedia says Kitty was born in Aylesbury and actually is Katherine Anne Ussher.

  • “It would be interesting to know what proportion of these loans actually get paid back.”

    The consultation paper doesn’t say, but as 90% are repaid through recovery direct from benefits I suspect it’s very high.

    If this is so then, as many are repaid within 3-6 months, the overall cost of £770 million may be a distortion as it actually might be £400 million lent out and repaid twice in a year.

  • That was me above 🙂

  • David Morton 23rd Dec '08 - 6:58pm

    Many Credit Unions will only lend 3 times what a person has on deposit. If the government were putting up ADDITIONAL money. Say £500m to fund Credit Unions to lend potentially £1.5bn out to benefit claimants during a recession then it might be worth talking about an interest payment ( though not a store card level one !) to cover costs because (a) it would be an additional resource (b) you could use the revenue to pay off slowly the £500m.

    It could be seen as the government replicating the (re) capitalisation of the banks however with a wider social purpose. If more people on low incomes were brought into contact with credit unions then thats an added bonus.

    The other option would be to introduce a standing emergency loan facility on all post office card accounts. Some thing like upto 2 or 4 weeks benefits automatically paid back over 3 or 6 months. A small interest charge would cover admin and act as a deterent against frivous applications.

    However the existing Social Fund loans already involve a demeaning application where you have to jump through hoops to get the money. Charging store card interest on that sounds appalling.

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