Crisis Loan Funding

Lord McCrea of Magherafelt and Cookstown Excerpts

Tuesday 19th June 2012 Westminster Hall

[Dr Whiteford]

The hon. Gentleman’s point is well made. There are connections to be made across a wide range of policy agendas. His point is particularly important because it acknowledges that the prolonged economic stagnation we are experiencing has eroded the savings and assets of many, not only the unemployed or disabled. For the very poorest however, things have become a lot more precarious. I am sure that many MPs here today will have cases in their constituencies and can think of people who have been living an insecure, hand-to-mouth existence for some time, because work is so hard to find in the current circumstances.

The situation with crisis loans presents us with risks and challenges. Welfare organisations have expressed marked concerns about what will happen in practice when the social fund disappears. Their chief concerns relate to ring-fencing and whether set eligibility criteria and binding policy guidance will be attached to the funding allocations. They fear that without ring-fencing and clear guidance, big disparities could emerge in different parts of the UK and that, at a time of substantial cuts in the public sector, it will be all too easy for allocated funding to be absorbed into more general social work budgets or used to plug funding shortfalls elsewhere.

Those are legitimate, serious concerns. I hope that the Government will take the opportunity today to offer reassurance that they will put in place robust measures to ensure that there is good provision across the country and to prevent wide divergences emerging.

[Dr William McCrea (South Antrim) (DUP)]

I congratulate the hon. Lady on securing the debate. Does she agree that without appropriate crisis loans many of our constituents in crisis will be left hostage to high-cost and illegal lending, which will lead them into greater disaster?

[Dr Whiteford]

The hon. Gentleman makes a critical point and, incidentally, the Secretary of State has acknowledged that that is a risk.

The welfare system is different in Northern Ireland, where it is more fully devolved to the Assembly. I am conscious that a lot of my remarks today are not so pointedly directed there, but the general principle very much pertains. In Northern Ireland and Scotland, the risk of payday loans is real and causes untold misery in communities. MPs are presented with those stories, but are in many cases helpless. Once people are caught in a spiral of uncontrollable debt, it is difficult to get them out and reschedule those debts, particularly if they already have limited means. That is an issue for another day, but it is an important point that I hope I can come back to before I conclude my remarks.

I have some concerns about the way the changes will work in practice. We are less than 10 months from a substantial change to the welfare system, and it is not yet clear what resources will be available to the devolved Administrations and local authorities to help with set-up costs and administration associated with implementation, and whether those resources will be enough. I hope that the Minister will provide clarity about that this afternoon, and set out in more detail how the Government intend to proceed, and on what time scale. Given the substantial administration costs of the current arrangements, we must accept that there will be significant cost in setting up a new system. Local authorities and devolved Administrations need to be properly resourced to do that. I hope that a ministerial commitment will be set out today, with an explanation of what is being done and how far towards implementation the plans are.

A crucial underlying issue that cannot be ignored is the fact that, while demand for social fund support has risen dramatically since the start of the financial downturn, the budgets are not keeping pace with the growing need. For example, the community care grants budget has been frozen since 2005-06, so it has fallen in real terms in the past seven years. The 2012-13 community care grant budget in Scotland is 7% down on last year. I am sure that MPs, who work alongside their local authorities, will be aware of the increased strain on their budgets. I am sure I am not the only one who has met constituents who are waiting far too long for simple home adaptations or equipment that they could not otherwise afford, to enable them to live independently.

The budgetary constraints often prove to be a false economy. They put more pressure on local authority social services when they must step in with more intensive and usually more expensive interventions. The Government have made it clear that they aim to pull back crisis loan spending to its 2005-06 level, with the spend reduced from about £10 million in Scotland in 2009-10 to a projected £4.7 million in 2011-12. On the basis of the existing spend, that will create a funding gap in the region of £5 million to £10 million in Scotland alone next year. That is just one manifestation of problems that will arise in Scotland, England and Wales as the devolved Administrations and local authorities attempt to establish a fair and efficient way of distributing resources from a diminishing pot, against a background of increasing demand for support.

As the hon. Gentleman pointed out, the real losers will be people on very low incomes who turn to unscrupulous lenders and loan sharks who charge eye-watering levels of interest for modest loans. Googling the words “crisis loans” results in the search engine bringing up a range of sites offering very high-interest loans. Those are listed well before the Government website that makes it clear how to get access to Government crisis loans. In fact, crisisloans.co.uk is the website of one such high-interest lender. I am concerned that those lenders of last resort are becoming lenders of first resort. Increasingly, they are the only way people can obtain the money they need just to keep going. That often gets people into a downward spiral, and means that they get caught in debt. How on earth can someone on a limited income who is paying back four-figure interest ever hope to meet such debt servicing? Even people on modest incomes—or quite high incomes—get into trouble with credit cards and find it difficult to live within their means. We must take responsibility for the alternatives if we do not get crisis loans right.

It is not in anyone’s interest if the system is not fit for purpose, or if there are wide disparities within it between different parts of the country or local authority areas. There is pressure on us all to prevent that, and to avoid the avoidable. The people we are discussing are not, for the most part, the ones who caused the economic problems that we face, but they are being asked to carry a disproportionate share of the responsibility for them, and take a disproportionate part of the pain. I look forward to hearing how the Minister intends to tackle the funding shortfalls and the implementation budget, in particular, and, more generally, how she hopes the system can be made to work.