Loan with a mean streak

The discretionary Social Fund was implemented in 1988. It was a
key component of major changes to the social security system,
alongside a slimmed down system of grants for funerals and
maternity costs (since extended to include winter fuel payments).
Instead of people on the lowest incomes receiving grants as of
right for one-off essential purchases, the discretionary Social
Fund has a fixed budget (at a far lower level than previous
equivalent expenditure) with no right of appeal to an independent

In addition, 80 per cent of the fund was and is only payable as
budgeting and crisis loans, with just the remaining 20 per cent
payable as community care grants in limited circumstances. The
reforms led the then local authority associations to adopt a policy
of “determined advocacy” encouraging staff to only apply for grants
and not to engage in prioritising who could get a grant.

The Social Fund is a heavily researched area with findings
highlighting the inconsistency of awards and the hardship caused by
loan repayments and limited grant budgets. And despite years of
lobbying against loans by a range of local government and voluntary
sector bodies, the government has so far steadfastly refused to end
the loans system as a central feature. Instead it has proposed some
minor reforms to borrowing and repayment terms and decision-making
standards from April 2006, with messages in the Budget to develop
the fund along credit lines and some modest increases in budget

Some basic facts from a variety of official publications make
for interesting reading. At any one time, 40 per cent of those on
income support or income-based jobseeker’s allowance have their
benefits reduced (by up to 25 per cent) to pay off budgeting loans.
In addition, others are paying back crisis loans – the true level
of debtors to the fund is therefore far higher.

Social Fund spending accounts for less than 1.5 per cent of the
£22bn in benefits paid out by Jobcentre Plus, yet it accounts
for 4 per cent of the staff. Administrative costs are hard to
quantify but have been estimated to run at 31p for each pound paid
out. Over half of all people of working age who apply for a
community care grant are refused. Grant refusal rates vary across
Department for Work and Pension offices from less than 30 per cent
to over 60 per cent.

Just over half of loan claims are refused because applicants
already have too much Social Fund debt. Thirty-seven per cent of
crisis loans are “alignment payments” – payments to manage delays
and anomalies in processing and implementing benefit claims.

The Independent Review Service overturns 56 per cent of
community care grant refusals referred to them. Twenty per cent of
those refused community care grants get into commercial debt
(mostly from the high interest sector) to pay for the items. Half
of those refused grants had to do without basic items.

Major concerns about the principle of forcing the poorest to
repay money for essential items were highlighted by the House of
Commons social security committee in 2001, pointing out how this
undermined government targets to abolish child poverty.

This view is echoed by Beth Lakhani, the Child Poverty Action
Group’s expert on the fund: “In policy terms, Social Fund loans are
illogical and don’t fit with the targets to abolish child poverty
and reduce material deprivation. The evidence shows that parents
paying off Social Fund loans have to cut back on food. This has
implications for parental and child health as well as school

Lakhani also highlights looming problems involved in
transferring people off income support and onto child tax credit –
cutting some off from access to the fund and reducing others’
ability to repay fund loans.

Welfare rights specialists also point out that the legal duty on
people to repay loans when they move into jobs weakens the
incentive of earning money, while the inconsistencies and
restrictions on payments for work-related expenses have proved too
much even for the jobseeking functions of DWP to bear. This has led
to the creation of the Advisers Discretionary Fund for Jobcentre
staff. This was designed to circumvent the restrictions without
losing political face. The fund can be given to people on low
incomes to address barriers to work that the Social Fund won’t or
can’t pay for; for example, buying clothes for an interview or
paying for training.

Feedback about the hardship and inconsistency of the Social Fund
over the years has led local authorities to maintain the original
1988 policy of “determined advocacy”. In its evidence to the
Commons social security committee in 2001 the Local Government
Association reiterated the rationale for this stance by stating
that: “The deterrent nature of Social Fund systems and attitudes
stem from the continuing pressure to manage delivery within their
rigid cash limits.” This comment highlights the fact that
structural problems with the Social Fund are made worse by poor

In its 2005 report the National Audit Office (NAO) revealed what
many had long suspected: DWP staff training material is “out of
date and districts can choose whether or not to use it”. And it
added: “Some Social Fund staff told NAO that in many offices staff
do not tell potentially eligible customers about it as a matter of

Add in the NAO’s findings that 17 per cent of DWP offices either
“never or rarely” accept a personal crisis loan application and one
has official confirmation that malpractice is common.

Of course, it is easy to criticise the Social Fund but finding
alternatives is more complex. Proposals can easily attract
ministerial criticism that these would be a “honeypot” and
discourage work-seeking and they can also quickly be shot down by
the Treasury on cost grounds.

In its Charter to End Child Poverty, the pressure group End
Child Poverty (ECP), a coalition of voluntary and charitable
bodies, sets out a way ahead. It calls for a bigger grants budget
and the introduction of a system of annual child development
grants, health and safety grants for basic items like cookers and
following major family crises. Such proposals (which have been
costed) are very similar to those put forward in 2003 by One Parent
Families, the Family Welfare Association and the Child Poverty
Action Group and build on research into alternatives to the Social
Fund carried out several years ago by Professor Gary Craig of Hull

Despite this, the government refuses to accept the case for

EP also points out that: “It is important to remember that
Social Fund loans are made, not for luxuries but for basic
necessities such as beds and bedding, clothes and shoes, cookers
and washing machines and for things to help you look for or start

Director Jonathan Stearn says: “Lumpy, one-off costs are key to
tackling child poverty and something the government must address.
There remains widespread concern about the impact of Social Fund
loan repayments on people on low incomes.”

In recent years the pace of change in social security has been
relentless; disability benefits have hardly been out of the
headlines alongside changes to benefits for people from abroad and
changes in housing benefit. These pressing policy concerns
alongside denial by successive government about the failures of the
Social Fund have meant that the fund has slipped down the social
policy agenda. As hitting that child poverty target gets harder, is
it time to again highlight the Social Fund as an undesirable and
unhelpful aspect of the social security system?


Many people on low incomes continue to experience hardship
because of deductions from their benefits to repay Social Fund
loans. Here, the author analyses the scale of the problem and
considers recent proposals for reform.

Further Information

  • Helping those in Financial Hardship: The Running of the Social
    Fund, National Audit Office, 2005
  • T Buck, R Smith, A Critical Literature Review of the Social
    Fund. Final report for the National Audit Office, 2005. Both
    available at
  • Ten for a Million. End Child Poverty Charter, End Child Poverty
    Coalition, 2005,
  • M Howard, Lump sums. Roles for the Social Fund in ending child
    poverty, National Council for One Parent Families, Child Poverty
    Action Group and Family Welfare Association, 2004,
  • Experiences and consequences of being refused a community care
    grant, DWP Research Report No 210, 2004,

Contact the Author


Neil Bateman is an author, trainer and consultant who
specialises in welfare rights and social policy issues. He
undertakes work for a variety of organisations.


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