Tackling social exclusion involves helping poor people out of
debt and enabling them to break free from the loan sharks. But the
government’s system of discretionary loans has failed to act as a
bridge out of poverty, reports Jonathan Pearce.
Diane (not her real name) was forced to leave her home to escape
her ex-partner’s violence. Along with beds and bedding for her two
children, a toddler and an eight-year-old, she needed carpets for
her new house.
Diane is 26 years old and receives income support of £93.85
per week. Her outgoings are £93.49. On the face of it, she
would seem to be a perfect candidate for a generous loan from the
social fund – the government’s cash safety net for those on low
But her application was rejected because she was already
repaying previous loans at the maximum rate she could afford.
Fortunately for Diane, the Family Welfare Association helped
out, just one of many charities and community organisations that
provide the ultimate backup for those in need of cash in the
But there is a limit to what voluntary and charitable
organisations can do. During 1999-2000, 362,000 applications for
budgeting loans from the social fund were rejected – soaring from
around 5,000 in 1997-8.
This is one of many facts the House of Commons social security
select committee is confronted with, as part of its public inquiry
into the social fund. The committee is expected to report next
The fund is split into two parts:mandatory grants such as
funeral payments; and the discretionary part, which delivers loans
and community care grants. It is the latter that does not work.
Over the past five years, grants have remained static at about
£100 million per year, while loans have risen from £294
million to £494 million. This policy shift means claimants
have to repay loans out of subsistence-level benefits. As a result
clients increasingly resort to alternative, and sometimes
disreputable, sources of credit.
Even when loans or grants are made, they regularly fall short of
what is needed to buy essential items such as beds, cookers,
fridges and furniture. Inevitably, local authorities and the
voluntary sector are having to pick up the pieces.
The fund has been the target of vociferous criticism from both
claimants and professionals alike, but any reform of it must take
account of other government initiatives.
The Department of Social Security, responsible for administering
the fund, is undergoing a radical restructuring that will see it
change focus from one service fits all to agencies for specific
client groups. Hence the Working Age Agency, bringing together the
Benefits Agency and the Employment Service, comes into operation
this year. There are plans for a pensions arm, while responsibility
for child-related benefits will effectively move to the Treasury
with the introduction of integrated child credit in April 2003.
But the social fund has yet to find a new home. Social security
secretary Alistair Darling, and education and employment secretary
David Blunkett, are considering where the fund might go, but have
yet to commit themselves.
The Local Government Association in its submission to the social
security select committee states: “The fund’s failure to provide
adequate financial assistance for people who wish to live in the
community exemplifies some of the tensions between the government’s
aspirations for its social care policies, and the current scope of
social security provision.”
In subsequent sessions, the social security committee has looked
for an alternative manager for the fund within the statutory or
voluntary sectors, so far without success. While local government
would seem the logical choice, there are concerns that the fund
could prove to be a poisoned chalice. Suffolk Council welfare
rights manager Neil Bateman warned the inquiry: “If councils took
over the social fund they would take over the misery. A fundamental
reform of the social fund is needed.”
The voluntary sector is also reluctant to volunteer, with Family
Welfare Association director Helen Dent arguing that the sector is
not set up to cope with the fund.
The National Strategy for Neighbourhood Renewal is also likely
to have an impact on the social fund. Plans to increase access to
financial services and new measures to boost credit unions have
been announced this month, which could make affordable credit more
accessible for people on low incomes.
“Credit unions are an effective way of widening access to
affordable credit and savings opportunities to those who cannot or
do not want to deal with mainstream financial services providers,”
says Melanie Johnson MP, economic secretary at the Treasury. They
tend to be formed around a workplace or neighbourhood – members buy
a share, save regularly and can then take out cheap loans.
On the other hand, the social fund provides interest-free loans,
so the two could make uncomfortable bedfellows. In the long term,
the aim could be to phase out the bulk of the social fund as
unemployment falls, benefits levels rise and people are pulled up
above the poverty line.
Yet there will always be a need for some form of discretionary
fund for those on the lowest incomes, to deal with unpredictable
life events. The Child Poverty Action Group calls for the fund to
be reformed to deliver fewer loans and more grants, particularly
automatic payments for specific events.
This would inevitably require greater funding, but in this way,
provision could tie in more closely with local authority social
services. In turn, administration of some or all of the fund might
become more attractive to local government. Who knows, the social
fund might eventually find a home.