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Main Content: Carers UK urges Government not to charge interest on social fund loans
Carers UK has responded to a Department for Work and Pensions consultation on reform of the social fund. The social fund offers a mixture of loans and grants to help people on low incomes meet unexpected costs. It is a vital resource for carers who may need a loan to help afford larger items such as a new washing machine or cooker.
The consultation proposed a number of changes to the social fund, including contracting with local credit unions to provide the service alongside financial and budgeting advice. Currently loans and grants are made without advice, and there is no ongoing support for people who access the social fund and then return to work. To fund this advice the Government is proposing to allow providers to charge 1-2% interest per month on the loans.
Whilst welcoming the Government's recognition that financial and budgeting advice is important, we strongly oppose the charging of interest on social fund loans. We believe that the social fund should remain true to its core purpose of providing interest-free grants and loans. Low income benefit claimants should not be forced to pay for advice, through the interest payments, that they may not want or need. Even 2% interest means that the loan could build up rapidly, particularly if the person couldn't repay the loan immediately for any reason, for example if they lose their benefit through going into hospital. This would mean that interest builds up making it more difficult to repay the loan. Over the course of a year a £100 loan would accrue interest of nearly £27. We are also concerned that contracting out may lead to inconsistent levels of services across the country which would make it more difficult for carers to access the service.
Since Carers UK submitted our response, the Government has denied that it is intending to charge interest on social fund loans, even though this is clearly the suggestion given in the consultation paper. DWP Minister Kitty Ussher MP said on the BBC: “We are absolutely not proposing to charge interest on social fund loans. I think that would be the wrong thing to do." Carers UK will be seeking clarification from Government as we understand the proposals will be included in the Welfare Reform Bill which will be published shortly.
There are some welcome proposals in the consultation. We welcome the proposal to pay benefits in advance of the final decision on a benefit award, as currently people need to apply for a crisis loan to tide them over until their benefit decision is made. We also welcome the proposal that the budgeting loan scheme should start on the first day of a benefit claim.
The consultation can be found here:
http://www.dwp.gov.uk/consultations/2008/social-fund-new-approach.asp
Carers UK's response can be found here: http://www.carersuk.org/Policyandpractice/PolicyResources/Responsestogovernment