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Pilot No-Interest Loans Schemes: Contingent Liability

Volume 700: debated on Tuesday 7 September 2021

It is normal practice when a Government Department proposes to undertake a contingent liability in excess of £300,000 and for which there is no statutory authority, for the Minister concerned to present a departmental minute to Parliament, giving particulars of the liability created and explaining the circumstances.

I wish to notify Parliament of a contingent liability that has been created by the Government from the introduction of the pilot No-Interest Loans Scheme. The pilot No-Interest Loans Scheme was announced at the Budget on 3 March 2021. The loans will support consumers in vulnerable circumstances who would benefit from affordable credit to meet unexpected costs and will provide an alternative to relying on high-cost credit. Fair4All Finance, who were founded to support the financial wellbeing of people in vulnerable circumstances, have been appointed to run the pilot and will enter contracts with lenders to deliver the loans, including to provide a partial guarantee against default losses. To facilitate the lending to consumers in vulnerable circumstances, HM Treasury will reimburse Fair4All Finance for eligible default losses they incur under eligible guarantees.

HM Treasury will reimburse Fair4All Finance for up to 80% of eligible default losses incurred as part of the pilot. HM Treasury will reimburse losses on loans made from 22 September 2021, but the liability will not be incurred until Fair4All Finance enter guarantees with eligible lenders and defaults occur, which is not expected until financial year 2022-23.

The maximum amount to be paid under the contingent liability is £10 million, with expected payments totalling £1.8 million. HM Treasury will reimburse Fair4All Finance for eligible default losses on loans initiated after 22 September 2021 and will stop reimbursing costs by 31 March 2026. If the liability is called, provision for any payment will be sought through the normal supply procedure.

It is normal that any contingent liabilities should not be incurred until 14 sitting days after Parliament has been notified of the Government’s intention to incur a contingent liability. There is an exception in cases of special urgency. This is one such occasion.

In order to make timely progress with this policy, it is important that lenders have the certainty of the HM Treasury’s funding commitment to the pilot in good time before the November and December periods, which for many social lenders is the busiest time of the year. As such, HM Treasury’s grant agreement with Fair4All Finance has been signed to enable contract negotiations with lenders to commence.

I note that HM Treasury’s intention to develop such a pilot has been in the public domain for some time, and that the pilot has received broad support from across both Houses of Parliament since the Government funding was announced at Budget 2021. Given this support I hope the House is in agreement with my assessment that to delay signing the aforementioned agreement until the House returned would have been inappropriate and to the detriment of the beneficiaries under this scheme.

I will also lay a minute today on this matter.