Crisis Loan Funding

Andrew Smith Excerpts

Tuesday 19th June 2012 Westminster Hall

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I am pleased to have the opportunity to debate crisis loans and the changes to the social fund ushered in in the Welfare Reform Act 2012. My primary purpose in requesting today’s debate was not to rehearse arguments we have already had on the substance of those changes, although a number of issues remain unresolved and undoubtedly inform today’s debate, but to seek clarity from the Government about the implementation of the new system and assurances about the funding allocations accompanying the policy changes.

Although social fund crisis loans and community care grants will disappear from April next year, the need for emergency and one-off support for people on low incomes will not. We know that funding will be made available to local authorities in England and the devolved Administrations in Scotland and Wales to provide discretionary social assistance, but we do not yet know how that will work in practice or how local authorities and devolved administrations are expected to deal with the shortfalls. Questions raised throughout the process on the merits of ring-fencing the social fund allocations remain acute. We need to know what guidance the Government will issue to support implementation and whether resources will be allocated to establish a replacement system.

In terms of contextualising our discussion this afternoon, it is worth drawing attention to the important role that social fund crisis loans and community care grants play in our welfare system. They act as a safety net for people on low incomes who face unexpected or unplanned costs and help people to acquire essential furniture or equipment if they are setting up home in very straitened circumstances.

As the debate about crisis loans progressed last year, the Government repeatedly relied on the argument that the cost of crisis loans was spiralling and needed to be brought under control. Back in March last year, I suggested to the Secretary of State for Work and Pensions that the rise in the uptake of such loans was largely attributable to the recession. Given the ongoing economic turbulence, financial insecurity and high unemployment of the past few years, that might seem to most of us to be a no-brainer, but the Secretary of State insisted that the cost of crisis loans was rising prior to the recession.

I am glad to have the opportunity this afternoon to scrutinise that claim in more depth. It is clear that there is a link between the rise in demand for crisis loans and the onset of the financial crisis. We should be honest enough to face up to that. Members who have followed the issue will be aware that the Department for Work and Pensions annual reports on the social fund have been published from 2006-07 onwards only. If we use 2006 as our pre-recession baseline, as the Government appear to have done, there is clearly a dramatic year-on-year increase in both the number of claimants and the amount spent on crisis loans as the recession began to bite.

[Mr Andrew Smith (Oxford East) (Lab)]

I congratulate the hon. Lady on securing this debate on a very important subject. Underlining the point she makes, does not the DWP’s own research, “Local Support to Replace Community Care Grants and Crisis Loans for Living Expenses in England”, show that there is indeed a close correspondence between flows on to jobseeker’s allowance and the number of crisis loan applications?

[Dr Whiteford]

The right hon. Gentleman makes a salient point, which backs up the point I am making.

I want to look back a little further, using information that had to be obtained from the Government under a freedom of information request by a non-profit company called Full Fact. Looking at that, we can see that, in reality, prior to 2006-07 and the start of the banking crisis, the amount spent on crisis loans was remarkably stable between 2000 and 2005-06. During that period, the gross amount spent on crisis loans did not fluctuate—up or down—by more than 5%, and spending dropped in 2003-04 and the following year. Although overall there was a slight upward trend prior to 2007, it would be misleading to compare that with the dramatic increase in applications and expenditure once people started to experience hardship, as work dried up and costs for basic foods and heating started to rise. I am concerned that we are still in that position and that we can expect demand to continue to rise for as long as the economic turmoil continues.

I am struck by briefings from Citizens Advice Scotland and others that outline the wide range of circumstances in which people try to access the social fund. Those seeking crisis loans and community care grants include people moving into independent living and those who need basic furniture to set up home after a family breakdown or a period of homelessness. They also include people with employment problems, those with complex benefits claims, who are caught in the quagmire of the system with no immediate source of money for food or heating until their claim is resolved, and those who incur unexpected travel costs due to the illness or hospitalisation of a close relative.

Those eligible for crisis loans face a wide range of circumstances, but what they all have in common are cash flow problems, compounded by an underlying low income. That is a temporary state of affairs for some, but some others, such as those who are disabled or have long-term health problems, have little financial resilience to deal with unexpected costs. They have limited means to absorb financial shocks, such as the cooker or fridge breaking down or the aftermath of exceptional events such as burst pipes or a break-in. Burst pipe problems came home to me in the past couple of very severe winters. People living in homes that are not well heated are often those who would particularly struggle if faced with having to redecorate or get a new carpet. Such events are not only a burden on those on very low incomes, but on anybody living on a modest income who has to count the pennies.

--- Later in debate ---

[Maria Miller]

The hon. Lady needs to accept that if we open up the benefit gateway in such a way as to make it difficult to manage or police, it is entirely unsurprising if we see a significant increase in the level of demand. I take her back to one of my earlier comments about the nature of that increase. It is among a very distinct and particular set of people. It is not at all representative of any increase or changes in the nature of those claiming benefits in total.

In 2011, some 17,000 people received 10 or more crisis loans in a 12-month period. Crisis loans are about preventing serious risks to health or safety or about an emergency. Is it entirely possible that an individual could be in such serious risk and danger over such a prolonged period of time? The hon. Lady must agree that some urgent change is required here. As this is cash limited, any shortfall that is created would have had to be met from the budgeting loan scheme, which would have meant less money for those people who were trying to regulate their borrowing in a responsible way.

[Mr Andrew Smith]

In the time that remains, will the Minister address another important point that the hon. Member for Banff and Buchan (Dr Whiteford) raised about what safeguards there will be to ensure that vulnerable people who need this support actually get it from local authorities and that other local pressures do not absorb the money?

[Maria Miller]

The right hon. Gentleman neatly brings me on to my next point. Although there is no need for any new statutory duties on local authorities and the money will not be ring-fenced, the money will be sent out via a specific identifiable grant and it will be accompanied by a settlement letter that will set out what the funding will be used for and the underlying principles, and it will describe the outcomes that must be achieved. The funding will concentrate on providing resources for those facing the greatest difficulty in managing their income and it will enable more flexible responses at a local level. The letter will be explicit that the funding is to provide a replacement provision for community care grants and general living expense crisis loans. It will set out the sort of detail that the right hon. Gentleman and the hon. Lady are looking for to ensure that the most vulnerable people in our society get the support that they need.