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Social Fund Crisis Loans

Volume 524: debated on Thursday 3 March 2011

To meet genuine need, and in addition to continually recycling from the £1.3 billion fund, this Government are committed to maintaining core funding of £178 million a year for the discretionary social fund scheme over the spending review period.

However, since the introduction of remote telephone applications in 2006, there has been an unjustifiable growth in the use of crisis loans. The number of awards made has increased from around 1 million to 2.7 million while spending has almost tripled, reaching £233 million in 2009-10. In the last 12 months alone, over 17,000 people received 10 or more crisis loans.

On current forecasts, the resources for 2011-12 will only satisfy two-thirds of expected demand. Without corrective action to bring spending back under control the shortfall would need to be met from the budgeting loan scheme.

The situation is unsustainable, so I am announcing the introduction of three changes to the crisis loan system, to rebalance supply with affordable resources, to ensure funding for community care grants is protected, and to ensure we can continue to make budgeting loans throughout the year.

From 4 April 2011:

we will no longer pay crisis loans for items such as cookers and beds. There will be residual support for people following a disaster such as flooding;

we will reduce the rate paid for living expenses from 75% down to 60% of benefit rate. This will align with the position for jobseekers allowance cases paid at the hardship rate; and

we will implement a cap of three crisis loan awards for general living expenses in a rolling 12-month period.

Without these measures budgeting loans would need to be withdrawn before Christmas. This would leave significant numbers of people on low incomes with little alternative but to turn to high cost or illegal lending.