Examination of Witness (Questions 20 -
39)
WEDNESDAY 7 FEBRUARY 2001
ELAINE KEMPSON
20. Because, in relation to Social Fund loans,
it is my understanding that, if somebody gets a job, they do not
really pursue them whilst they are in work. It is only when they
are actually on benefit that the DSS really starts to take an
interest, because, presumably, it will be not cost-effective to
chase these relatively small amounts of money through debt recovery
through the county court, or whatever, where you spend more on
chasing them than you are getting back. So, whilst, on the one
hand, when somebody is on benefit, they have got a really easy
way of getting the money back, just clawing it back from the benefit,
and if somebody comes back onto benefit they are in the same position,
I suppose you could say, in relation to the Social Fund loans,
the incentive is to get a job, because you are out of repayment
until you lose it again?
(Ms Kempson) I am not sure people are that calculating,
actually. It is quite remarkable, all the work we do on people
in arrears, people who are owing money, shows how incredibly honourable
the great majority of people are, they really firmly believe,
"I owe this money, I must repay it." And, going slightly
off at a tangent, even when we talked to people who owed large
amounts of money to the then British Gas, they were saying, "Well,
they had to disconnect me because I owe them money. I can't pay
them; they have no choice." When most people are actually
quite honourable and would not, I think, see it as a way of sliding
out of payment. I am not even aware of any evidence that people
know that they will not be pursued when they go back into work.
I suppose experience might tell you that.
21. I suppose that is supported by the figures
for the net cost of Budgeting Loans, compared with the overall
budget for Budgeting Loans, in that the net cost, which presumably
is the money that has not been repaid, is tiny, compared with
the overall total?
(Ms Kempson) Yes.
Chairman: I want to move on to how the Budgeting
Loans scheme is working; but, before that, we have got just a
quick supplementary from Ann Winterton.
Mrs Winterton
22. Could I just ask, because I have a very
good credit union in my own constituency, what role you feel that
they can play in providing low-cost credit, and whether they can
play an enhanced role? I realise that there are perhaps not enough
of them throughout the UK, but do you feel that there is a path
which might assist the people about whom you have been talking?
(Ms Kempson) I think credit unions do have a role
to play, and it is quite important, but they serve a different
group from the people who go to the Social Fund, there is a small
amount of overlap. The work we did for the DSS we did in areas
of high Social Fund applications, and ones that had a very active,
community-based credit union, including probably the biggest one,
certainly in England. We found that the people were in very different
circumstances. The people who were members of a credit union had
greater stability in their lives, had been on benefit for shorter
periods of time, therefore found it possible to save in order
to borrow. But I think the other, very interesting distinction
that we were not aware of until we did this work was how people
on very low incomes used their credit union savings and their
loans. They used their savings merely as a means of getting loans,
not as a means of saving, and they used their loans for discretionary
items that they would otherwise have saved up for. And so what
they were seeing it as was, almost like an advance on my savings;
"I save £100 and I can only get an advance on my savings."
So they spent it on confirmations, on weddings, on holidays, on
treats, in strict contrast to the Social Fund, which the others
were using for essentials. But the members of the credit union
did not have those same, very basic needs as the people using
Social Fund.
Mr Thomas
23. When you refer to mail order, I was not
quite clear whether you mean what many people call catalogue debts?
(Ms Kempson) I mean catalogues, mail order catalogues.
24. So, basically, it is not mail order for
a sum of money, it is mail order in the sense that you buy goods
through credit?
(Ms Kempson) It is buying goods, but it is the sorts
of goods that people would buy using their Social Fund loans.
25. The other question is, we have already touched
upon this, has any work been done on the breakdown of indebtedness,
of the source of credit, and how the Social Fund compares with
other forms of sources of credit? Would it be fair to say, for
instance, that really the Social Fund is catering for a small
part of the market share, if one can say that, compared with the
majority of alternative forms of credit?
(Ms Kempson) As I said earlier, we have a great lack
of information about credit usage generally. The last time we
did a national survey, or indeed anybody did a national survey,
to look at levels of borrowing and levels of arrears and the types
of borrowing, right across the board, was in 1990, and it was
quite clear that the Social Fund then was very much in what we
call the secondary market, along with all the sources of credit
that I have just described.[4]
26. Would you like to hazard a guess, in percentage
terms, I suppose the parameters of that question are difficult,
hazard a guess as to the percentage of the population who actually
take up Social Fund credit?
(Ms Kempson) We know how many applications there are,
but we do not know what proportion of the population that is;
any figures we have on proportions of population are just so old
that it would be meaningless. We know there are about a million
successful applications every year, some people will make more
than one. I do not know whether that helps give you some idea
of the scale.
Ms Buck
27. Does anybody monitor ethnicity?
(Ms Kempson) No. As I keep saying, there is an awful
lack of hard information, statistically, across the population;
we do know that it is quite attractive to Moslems, from qualitative
work, for whom other sources of credit are quite unacceptable,
because of Islamic teaching. Mail order catalogues, strangely,
well, apparently strangely, they do not charge interest, they
charge an increased price for the goods, which is then spread,
and so, therefore, that is acceptable to a Moslem, although they
are quite unaware of that, by and large. But the Social Fund is
quite valuable, or very valuable, for the Moslems, particularly
poor Moslems.
Dr Naysmith
28. I am going to ask a little bit about how
the Budgeting Loans scheme is working, but, like everyone else,
I am just interested in your alternative sources of credit that
we have just been talking about; so if I could have a quick question
on that. You talk about credit unions serving a different section
of the population. Now lots of local authorities and community
trusts, and so on, devote quite a lot of resources to stimulating
credit union formation and backing them; you are not suggesting,
are you, that that is, in any sense, a waste of money?
(Ms Kempson) Not at all.
29. Could it be that the different section of
the population they are serving prevents other people dropping
down, to put it crudely, to the other situation?
(Ms Kempson) They could do. They do draw some people
from amongst the main group for Social Fund, the Income Support
and income-based JSA, although not disproportionately. I would
say that those people are underrepresented amongst community credit
union membership. Credit Unions do serve a need, and it is important
that they are there, there is no doubt about that, within that
income group, people whose circumstances are slightly better than
the ones who come to Social Fund. I think also one very welcome
trend from within the credit unions, and indeed schemes like Cambridge
New Horizons, run by Cambridge Building Society, which I can explain
more if you are interested, is that they are beginning to experiment
with debt buy-out. If somebody is in financial difficulties, they
can buy out their existing loans and convert a high-cost loan
to a very low-cost one, and try to break the cycle of constant
borrowing, because you are borrowing. And I think that would be
a very welcome development, but it is very much in its infancy.
Really, to reach the people for whom Social Fund is a vital resource
at the moment then I think we are going to have to look at more
of those schemes.
30. Thank you. If we can move on now to the
Budgeting Loans scheme and how it is working, you are quite positive
about the advantages of the new scheme in providing speedy and
more straightforward and more simple access to interest-free credit,
but you also talk about the major drawbacks, that lots of people
are rejected, and most of those who receive rewards get less than
they apply for. Don't these fundamental drawbacks outweigh matters
such as simple application forms and quick decisions?
(Ms Kempson) I do not think the advantages outweigh
the administrative advantages, for sure. I think the fact that
this is an interest-free source of credit certainly plays a very
big part in people's minds. But if we are looking just at the
changes then I think, although the scheme set out to be simpler
and more transparent after the changes, it has not actually achieved
that. It has achieved a more streamlined, a quicker decision-making
process, but one that is still not transparent. And it is not
transparent for the reason that I raised earlier, which is that
it operates like no other form of credit. With other forms of
credit, if you borrow and you repay part of that loan, you know
what you can get by way of a top-up loan. If you borrow £500
and you pay back £100, you can almost certainly get the £100
again; it is not guaranteed, but people have some notion. People
have no idea with the Social Fund, in fact. It is quite difficult
even for quite educated people to get their minds around calculating
how much somebody might get, because it is a much more complex
sum. The Social Fund Commissioner, I see, has tried to simplify
it for us slightly. So people have no idea how much they will
get. The indication is there may be a worrying trend, with the
revised scheme, and that is, that already people are applying
for double the amount that they want, in the expectation they
will get half of what they apply for; and that is generally the
rule, people get half of the amount that they apply for. If that
is the case then we are going back to some of the defects of the
old scheme, where it was considered a lottery. People said they
needed cookers and bedding when, in actual fact, they needed to
pay a bill, or something that was not considered a high priority
at their local office. They were lying about what they wanted,
and would tell us in surveys that they had lied, because they
knew they would not get the money and they were desperate to get
it. And I think that is now quite widely accepted to be the case.
We may be in danger of moving towards a situation where people
now lie about how much they want, in order to get the amount they
really want, which is a waste of resources really.
31. So people get no explanation of why their
loans are turned down, or why they get less than they asked for?
(Ms Kempson) Understanding the calculation of how
much you are entitled to, when you are applying for a top-up,
or indeed why you have been turned down altogether, is quite complicated.
People do not understand it, they absolutely do not, they cannot
explain to us why, they just say, "I can't get it because
I've already got a loan," and that is as far as they can
go.
32. So is that the major problem, that people
ask for more than they really need for the purpose they are applying
for?
(Ms Kempson) No, only a few are beginning to do that;
the major problem is that most people do not get the sum that
they need and therefore have to look elsewhere for it. If they
are fortunate, they have got friends and family they can go to
who will make up the difference; more often, they have to borrow
commercially. Although I did not put it in my written submission,
there was evidence, in one local office, that people were actively
being directed to sources of high-cost credit, and particularly
this rental purchase scheme, where people were getting their goods
repossessed. So they were quite angry about having been directed
to a source of credit they considered inappropriate for somebody
in their circumstances. Others go without, and we talked to people
who, despite having small children, in one case a disabled child,
had to go without a washing-machine. There was no launderette
nearby and she was trying to wash all the clothing by hand, until
such time as she could manage to get another washing-machine.
People were usually buying white goods that they really needed.
33. People have a choice, they can ask for higher
loans with higher repayments, and lower loans with lower repayments,
but is there any evidence at all that people who are applying
for these loans can afford the repayments from their weekly benefits
anyway?
(Ms Kempson) I think that raises several separate
questions really. On the levels of repayment, people struggle,
they really do struggle, and if there is any change, tiny change,
in their circumstances, that can cause them to fall into arrears
elsewhere. As I said earlier, they may get several offers and
they usually take the offer that will give them the sum of money
they want.
34. Is that common, to get several offers, does
that happen frequently?
(Ms Kempson) I do not know how common it is, I could
not tell you statistically how common it is, but I know that people
are often made more than one offer. That is quite different from
any other lender, who would not say, `I'll either lend you £500
at this rate of repayment, or £300 at that;' other lenders
would say, `You can borrow it for a longer period of time', and
that is what they are accustomed to, being able to spread the
repayments. They simply do not know how these repayments have
been arrived at, and do not know that they could appeal against
the high levels, and they are disproportionately high for small
loans. People presume, and I think presume correctly, that they
are set high in order to get the money back into the kitty again
quite quickly, so it can be lent to somebody else. But it does
cause them hardship.
35. Does anyone talk to them about this, or
is this just a written offer, or an offer over the telephone?
(Ms Kempson) I do not know the answer to that.
36. Is there any kind of negotiation in the
process?
(Ms Kempson) Most are just paper-based these days,
so there is no evidence, from talking to the applicants themselves,
that they have ever discussed any of this with anybody, which
is in absolute contrast to, say, a credit union, where you would
discuss how much you could afford to pay, how much you needed
to borrow, and indeed actually even with the weekly collected
credit companies, who get a very bad press, they will discuss
with you how much you can afford, very often, and set the terms
of the loan accordingly. That does not happen with Social Fund.
Dr Naysmith: Thank you. That has been very helpful.
Ms Buck
37. Just on that, is it not true, to some extent,
at least, that people access the system often through social workers
and other advice agencies, or is that not your experience, because
that has certainly been my experience, but that could be unusual?
Are people facilitated into the system by somebody, more often
that not?
(Ms Kempson) No, I do not think so. I think most people
who apply have applied before, so it is difficult to catch somebody
on their first application. I think probably not. That is one
of the benefits of the current scheme. People do find it easy
to apply on their own, they do not find it difficult to do so.
They find the form quite straightforward, and comment on that,
although they had absolutely no idea that anything had changed
until they applied. But there is a very high level of repeat applications,
so most would not, therefore, go in through a social worker, they
would be applying on their own. But I think you ought to check
that with officials, to be absolutely sure.
Mrs Humble
38. It is often a lot easier to criticise a
system than to come up with proposals to change it that people
can agree on; so can I just talk to you a little about options
for the future, suggestions that we, the Committee, might make
for altering the system. In answer to a question that the Chairman
asked, right at the beginning, you commented about the low level
of income that people had in order to repay these Budgeting Loans.
So, even if these loans are interest-free, is that really the
answer for people living barely above subsistence level? Should
we be looking at grants, at going back to the old single payments?
And I have looked at the statistics that we have had provided
about Community Care Grants, and, even though the amounts of money
have gone up, although it has only gone up by 2 per cent from
1995 through to this last year, two-thirds of people who apply
for Community Care Grants were refused. Should we be looking at
a grants system, rather than a loans system, especially for essentials?
You know how the old single payments used to work, and we were
talking about people using loans for essentials, not for discretionary
items, and the old single payments covered that area, it covered
the cooker and the bed and essential items?
(Ms Kempson) There is a case to be made for just that.
I think there is also a case to be made for people's benefit levels
to be higher, which I think is probably stronger than the case
for grants, looking at it from their point of view. In financial
terms, grants are better than loans; psychologically, people do
not like asking for handouts, and they would sooner have a level
of income from which they could be affording the basic things
that they need.
39. But is that based on an assumption then
that somebody may be on benefit for a long time; if you are going
to build into that benefit level an amount that that person realistically
could be expected to save then for a new bed, or a new cooker,
are you building in assumptions that people are going to be on
benefit for a longer length of time? And in the changing world
that we have now, with the Government trying to encourage people
into work, and doing everything that they can to make work an
attractive option financially for people rather than remaining
on benefit, do we want to do that? How do we want to see benefit,
do we want to see benefit just for supporting people for a relatively
short length of time?
(Ms Kempson) Some people do live on benefit for very
long periods of time, and they are quite easily identifiable,
and for those, particularly for the lone parents, pensioners on
Income Support, it is a struggle, and they will be there for a
long period of time. And I think we need to look, quite broadly,
at whether their rates of benefit are high enough to enable them
to live without the constant worry and without the indignity of
having to apply for a grant in order to replace their cooker.
It is a difficult one to answer, because, of course, grants would
be better than loans. The one thing that comes through to us,
in all the work we have done on financial exclusion, in particular,
is that what people on very low incomes, poor, vulnerable people,
want, more than anything else, is to be like others, they do not
actually want to be stigmatised, they do not want to be made to
look different, they do not want alternative solutions to their
needs. What they want, if at all possible, is to be integrated
into something that looks like what everybody else uses. So that
is why I would put the emphasis rather on higher scale rates for
those that we know are on benefit for very long periods of time
than on giving them grants. But if it came to a choice, it would
all depend whether the grants would be as generous; presumably,
we would then have to go back to tie it to particular needs again.
And I think we would then be back into all the difficulties of
people having to pretend they need one thing when they need another,
because their needs may not necessarily be for something for which
you could get a grant, and yet they may still need to borrow for
that, and their needs are wider, really, than the old items for
which they could previously get loans, which is why the scheme
has been relaxed as it is.
4 Note by Witness: I was asked how the amounts
borrowed from the Social Fund compare with the amounts from other
sources of credit. I am not entirely sure whether Mr Thomas was
referring to all forms of consumer credit or just those catering
for the needs of people on low incomes. If he meant all forms
of credit, the figures are as follows: In the financial year 1999-2000
around £429 million was lent from the Social Fund. Bank of
England figures show that over the same period, a total of £14,780
million was borrowed in consumer credit. But, of course, the Social
Fund is only available to people on IS or income based JSA, while
the Bank of England figures relate to borrowing across the population
as a whole. As I have said above, we do not know exactly how much
is borrowed from companies that specialise in the supply of credit
to people on low incomes, although I have produced a broad estimate. Back
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