Select Committee on Social Security Minutes of Evidence

Memorandum submitted by Professor Gary Craig, University of Hull (SF 35)


  S1.  A comprehensive review of the workings of the social fund is long overdue.

  S2.  Initial concerns about the social fund were that it was largely based on discretion, would give help mainly in the form of loans rather than grants, and that expenditure would be capped, driving potential claimants towards the charitable and informal and exploitative loan sector. These fears have all been realised in practice.

  S3.  The fund also officially sanctions the breaching of the Beveridge principle, taking claimants' weekly income 15 per cent or more below already parsimonious benefit levels. Wide-ranging research findings confirm that weekly social assistance levels are inadequate for even modest standards of living.

  S4.  In general, increasing pressure on the fund's limited resources have been managed by increasing refusal rates or by limiting eligibility. Refusal rates for community care grants and for crisis loans almost doubled in the first 10 years of the fund, and refusal rates have only been maintained at their original levels of about 40 per cent because of the effect of recycled loans expenditure which appears to provide increased levels of expenditure. In reality, net expenditure on budgeting loans has dropped by almost 70 per cent whilst loan repayments have increased ninefold.

  S5.  In all, almost 15 people have been refused help in the life of the fund so far. Of these about three million have been refused help because of "insufficient priority": these claims meet the criteria of the fund but are not met because there is inadequate money in the fund.

  S6.  The fund also operates to distinguish between so-called "deserving" and "undeserving" categories of claimant.

  S7.  The costs of the fund have to be judged not simply in terms of net expenditure but in terms of a high administrative and management costs, its inefficiency and its unpopularity with staff who spend most of their time refusing help.

  S8.  A carefully costed set of proposals for reform suggests that key values of eg equity, consistency, flexibility and dignity could be met by a structure largely based on regulation with discretion at the margins and involving expenditure of no more than about 0.5 per cent of current social security expenditure.


  1.1  I welcome the Committee's review of the workings of the social fund; this is long overdue in my view since there has been little effective Parliamentary scrutiny of the fund since its early years. The Government itself has consistently limited its reforms to minor issues, such as improvements to application forms, streamlining the reviews process, or by further limiting the eligibility of some families for loans, and has failed to address the major structural faults of the fund, which have been the subject of continuing and major concern throughout the lifetime of the fund.

  1.2  The social fund was established operationally in 1988 as part of the 1986 social security reforms. With the possible exception of the proposals for reforming pensions, the social fund attracted the greatest levels of public, professional and academic controversy. This was particularly remarkable given the fact that the fund was likely to involve a relatively minuscule proportion (considerably less than 1 per cent) of total social security spending. The reasons for the controversy focused on several key aspects;

    —  the return of the additional payments scheme to a largely discretionary scheme (albeit with some limited regulated elements for funeral, winter and maternity payments); this led to fears that the fund would act particularly against the interests of "unpopular" claimant groups such as unemployed young people, lone parents and members of minority ethnic groups;

    —  the new overwhelming emphasis on providing financial help in the form of loans rather than grants; and

    —  the intention to cap expenditure and the likelihood that this would deflect demand onto other organisations outside the sphere of government, and/or drive need underground.

  These concerns have continued to be voiced as strongly since the introduction of the social fund as they were in 1988.

  1.3  I have undertaken a detailed historical and comparative study of the development of one-off social security payments schemes since 1934 as part of my work towards developing a proposal for the reform of the social fund. These proposals for reform were published in association with the Joseph Rowntree Foundation in 1992 and I append a copy of the report, and a copy of the JRF Findings, with this brief memorandum. I have regularly monitored the progress of the social fund since publishing that report and see nothing which would fundamentally affect the general conclusions of that report, which I take the liberty of commending to the Committee. (Further copies can be obtained from the Social Policy Research Unit, University of York, Heslington, York YO10 5DD). I believe that the need for a small degree of discretion at the margins of a largely-regulated scheme, which my proposals for reform address, would meet the more recent demands placed on the fund by increased numbers of refugees and asylum seekers seeking help since my proposals were drafted.

  1.4  I am therefore limiting myself in this memorandum to highlighting the key issues which have emerged over the past years, in order to underline the conclusions of that report, in relation to the operation of the discretionary part of the social fund in particular.


  2.1  When the social fund was introduced, it was described by the then-Secretary of State for Social Security as a scheme, particularly through its loan provisions, by which people on low incomes could be provided with "a sum of money within which they manage [their finances] for themselves". This was not the view shared by most commentators including those on the front bench of the-then Opposition who expressed the concerns of the overwhelming majority of those outside Government that the fund was, most of all, and regardless of its potentially damaging effects on the poorest in society, a device for managing expenditure on one-off payments.

        "up and down the country, the Government's new social fund will mean sweeping cuts in the help available to the poorest members of the community";[7]

        "the social fund is a lottery and the chances of winning depend on where you live . . . . [local office] spending priorities have nothing to do with local needs."[8]

  2.2  Nevertheless, the position taken by successive Governments has been that the social fund continues to provide appropriate help effectively to the poorest people, and to do so in a targeted way.

        "the social fund is solid evidence of the Government's continuing commitment to providing help with exceptional expenses for vulnerable people".[9]

        "the regulated and discretionary parts of the social fund contribute to this goal [of tackling unjustifiable social and economic inequalities] by providing a variety of help to those in greatest need".[10]

  2.3  An overwhelming body of research evidence—perhaps the most substantial and consistent body of independent research evidence ever mounted in relation to a single element of Government social security policy—has demonstrated that, whilst the fund may be judged a remarkable success as an instrument of financial control and of ideological discipline, in terms of providing help for the most vulnerable and needy, it is an abject failure. It is my view that reform is urgently needed, particularly in light of the Government's clear demonstration of its commitment to addressing poverty amongst adults and children.


  3.1  It is perhaps worth reminding the Committee in a little more detail of the basic elements of the widespread critique of the social fund. First of all, the fund officially sanctions the breaching of the Beveridge safety net. Social fund loans take claimants' income 15 per cent (and often more) below the official poverty line. This might be acceptable where the official poverty line were set at an adequate level. But a long tradition of rigorous research, with much of which members of the Committee will be familiar, has demonstrated the inadequacy of basic social assistance benefit levels. Successive governments have long refused to countenance any official review of the adequacy of benefits. The only such review, in the 1960s, was suppressed by Government itself because of its embarrassing findings (that benefit levels were inadequate for the maintenance of an acceptable standard of living). As a result, social assistance benefit levels today are not judged in terms of their objective adequacy but in relation to a series of politically expedient decisions made shortly before and after the Second World War.

  3.2  The work of the Benefits Research Unit (Becker and Silburn 1990) and the Social Security Research Consortium (1991), confirmed by later studies, showed that the social fund generated increased indebtedness amongst the poorest claimants and that it could be counted a policy success only in its (implicit) policy objective of limiting expenditure on the poorest. The Social Security Consortium's (1989) review of the fund's impact on voluntary organisations demonstrated that the fund was shifting demand for help onto charities and voluntary organisations or driving it underground into the "informal" and exploitative private loan sector. The DSS-funded official evaluation of the fund (Huby and Dix 1992) found that "decisions to make awards were so erratic that there was nothing to distinguish the needs of those who received them from those who did not." Strangely, a subsequent Secretary of State, Peter Lilley, apparently derived the opposing conclusion from this rigorous study and other evidence, claiming in 1993 that the "official" evaluation, the SSAC criticisms, and those of all other research, provided "no evidence to alter our belief that the basic principles of the discretionary scheme are right."

  3.3  Both Craig (1992) and the Social Security Advisory Committee (1992) responded to the growing chorus of intense criticism against the fund with carefully costed and details proposals for affordable change. Cohen et al (1992) traced the impact of the fund on the day-to-day lives of families in several cities; claimants reported increased debt, enforced dependence on family and friends, and growing inability to buy essentials. A consortium of voluntary agencies, including the Children's Society, the Family Welfare Association and the Family Service Units, returned to look at the fund in 1996 (Cohen et al 1996), finding yet again that "the fund is manifestly failing to meet need and . . . creating confusion and despair amongst benefit claimants" and showing, in a very detailed way, the process which drives claimants away from the social fund towards charitable help. The response of the-then Bishop of Liverpool to reading this report was that he was "deeply shocked." Recent evidence from charitable bodies shows that the fund continues to deflect demand away from Government into the voluntary sector; Members of Parliament will no doubt be very familiar with this phenomenon from their own constituency work.

  3.4  Early evidence showed that the operation of discretion was inequitable in practice and that decisions were shaped often by prejudice and discriminatory attitudes. For minority ethnic groups, the evidence suggests that structural discrimination played an important part in deterring applicants although the failure of the DSS to engage in effective ethnic monitoring makes it difficult to be conclusive about this; there is some evidence that black and minority ethnic groups find the structural features of the social fund at odds with their own cultural and collective traditions for providing financial support and therefore make little use of the fund. The structural discrimination built in to the social fund is reflected in the distribution of grants and loans between different groups of claimants (see below). Although more recent changes have apparently limited the degree of discretion open to local officials, social fund officers still have a strong influence on the way in which claimants needs are "shaped" and (although this has not been publicly made known), on the size of loans which may be made available to them, in order to discourage claimants from applying (Community Care, 25 March, 1999).

  3.5  The fundamental criticisms of the social fund have always been—and remain—that it is discretionary and cash-limited, elements of the scheme which have required social fund managers to juggle with budgets in the face of unpredictable demand in such a way that the notion of a lottery is inescapably built in to its workings. The description of the social fund as a lottery continues to be particularly appropriate. It remains the case that the chances of obtaining help vary significantly from area to area, from month to month, and between differing population groups in ways which can bear no fundamental relationship to logic or need. As noted above, the concern that the fund would be a means of driving expenditure into the charitable or voluntary sector, or towards local authorities (under their S.17 provisions) continues to be raised as a result of the experience of charities. For example, both national charities such as the Family Welfare Association and the RC Glasspool Trust, and small local charitable bodies such as the Dr Edwards and Bishop Kings Trust of Fulham (established to respond to local need), report that their grant resources continue to be under considerably enhanced pressure from people refused help by the social fund. Many such charities have been forced to take defensive action by, for example, requiring evidence that claimants have approached the fund and been refused before providing help, a procedure which in itself leads to increased hardship.

  3.6  An analysis of the first 10 years of the fund, seen from the perspective of a lottery, suggests that there are some safer "bets" than others in terms of the likelihood of getting help. The fear amongst social fund managers of reprisals against them for overspending (following the near management disasters of 1990 when some social fund officers had spent their whole budgets by late summer), balanced by the desire to spend up to the prescribed limit in order to avoid loss of budget for subsequent years, means that February and March are always better months to get an application in: in some years almost twice as much spending has gone on pro rata in March as it would do on a steady spending basis. For both grants and loans, the traditional menu of exceptional items is always the best bet: cookers, beds and floor covering. Clothing scores higher with budgeting loan applications than for grant applications or crisis loans. This kind of statistical detail has increasingly been obscured by the DSS annual reports.

  3.7  The fear that need would effectively be driven underground by the working of the fund has also been realised. My own study in Bradford (1989-91) of income support claimants of both white and Pakistani origins, and subsequent research by the Children's Society and others revealed large numbers of claimants who were unwilling to approach the social fund either because they were uncertain of their chances of getting help, because they judged that they would not be able to service even an interest-free loan from their already inadequate benefit income, or, in the case of claimants of S Asian origin, that the loan-based focus of the fund was alien to their own culture.

  3.8  The fund's inability to meet more than a fraction of the demand placed on it has led, equally inevitably, to the fund fully justifying its sobriquet as the "fund that likes to say no". All that has changed in essence in relation to the social fund over the past 12 years has been that pressure on budgets has grown and that more poor people have suffered as a result. Year on year, many of the changes introduced by the Government and the DSS have essentially been attempts to manage that pressure more effectively by, for example, limiting the scope of eligibility, attempts supported, at times, by statistical distortion.

  3.9  For the community care grants budget, for example, although gross expenditure has risen from £41 million (1988-89) to £98 million (1998-89), a fourfold rise in the rate of applications from just over 300,000 to almost 1.2 million over the same period, means that the refusal rate has risen from 48 per cent in its first year to 81 per cent in 1998-89. That is one million people refused help in the last year of the regime covered, and a total of about eight million refused grants in the 11 years since the fund began work to 1999. During this period, 700,000 people have been refused grants not because they were ineligible but because of "insufficient priority", that is, not because their needs were not covered by the fund but because there was not enough money in the fund to meet those needs. In 1999, the Government introduced new arrangements for filtering applicants before they reached the stage of formal application. Thus significant numbers of those who might have applied for grants are now "discouraged" (ie prevented) from doing so; as a result applications for community care grants in the year 1999-2000 were 45 per cent down on the previous year.

  3.10  Looking at the crisis loans budget, a similar pattern emerges. Despite the extremely tight regime under which a crisis loan can be made, the refusal rate has climbed from 12 per cent in 1988-89 to 27 per cent last year. Net expenditure meanwhile dropped from a peak of £11 million (in 1991-92) to only £3 million in 1998-89 but rose steeply last year to £9 million, as a result presumably of exceptional demands. That is, the crisis loan part of the social fund has come to be virtually self-replenishing, with income from recoveries replacing expenditure on new claims. The Government might regard this as an administrative triumph and proof indeed that the virtues of careful budgeting which it champions amongst poor people by use of the fund's loans mechanisms are manifest in the fund itself. The darker side of the crisis loans sector however is that about 60,000 people have been refused in the life of the fund to date for one or other of two categorical reasons, the first for "insufficient priority" again; that is, people formally acknowledged as facing a crisis in their lives because of having no money are rejected because the fund itself has not enough money to help them. The other reason is "inability to repay", that is that people are too poor even to service an interest-free loan. This data suggests that the social fund managers are driven by the need to meet financial targets and budget constraints rather than with meeting needs identified even by their own tight criteria, of the poorest people in society.

  3.11  The budgeting loans budget is, however, the operational heart and soul of the social fund: it is the largest part of the fund and the part where the disciplinary role of social security expenditure is clearest. By the end of 1999-2000 financial year, almost 15 million people will have applied for budgeting loans and almost six million will have been refused help, one-third of those because of "insufficient priority", a total of about three million applications for help from the fund have been refused help on these grounds alone. The DSS has now ceased publishing details of reasons for refusing help for budgeting loans applications for reasons which are not clear. Net expenditure has fallen from £68 million (against gross expenditure of £108 million) in 1987-88 to £23 million last year, against gross expenditure of £396 in 1999-2000; to put it another way, loan recoveries have risen dramatically from £40 million in the first year of operation to over nine times that much, £373 million, last year. As a result, the budgeting loans part of the fund appears not to be under pressure and its refusal rate has dropped slightly from the initial figure of 41 per cent to 40 per cent, whilst gross expenditure has risen steadily to almost three times its original level. This is a statistical sleight of hand which allows successive Secretaries of State to present the social fund as responding to demand and meeting the needs of the most vulnerable: actually, it is largely the previous cohort of applicants which is meeting the needs of the next cohort, whilst the demands on social security expenditure generally fall year on year.

  3.12  In the first year of operation, the net total call on the discretionary part of the fund in terms of "awards" was £118 million; last year it was £130 million, some £33 million less than if the spend on the social fund had increased year-on-year by a (very modest) inflator of 3 per cent. This extraordinary tight financial line is underpinned in part by the absolute refusal to help those dressed up in official language as a bad risk, the almost 300,000 claimants (so far) refused because of being adjudged unable to repay even an interest-free social fund loan.

  3.13  The disciplinary function of social security expenditure is also reinforced by the division between the loans and grants sections. The proportion of grants expenditure going to pensioners and the disabled (the traditionally "deserving" categories of claimant) has risen since the fund opened for business, from 31 per cent to 43 per cent, whilst the proportion going to lone parents and the unemployed has dropped from 59 per cent to 44 per cent—the latter are the groups now even more strongly "directed" towards the loans section of the fund where they have received between 65 per cent and 85 per cent of the budget compared with the 10 per cent-22 per cent going to pensioners and the disabled.


  4.1  The costs of the social fund have not to be judged simply in terms of the net expenditure incurred every year which has, as data cited above shows, fallen steadily over the years. It has to be judged most of all in terms of its contribution to the hidden immiseration of literally millions of people and the social division and exclusion to which it contributes, quite at odds apparently with the present Government's stated policy objectives of removing poverty and social exclusion. Helen Dent, Chief Executive of the Family Welfare Association, for example, has been quoted as saying that families rejected even for loans from the social fund for cookers, were told that they could buy sandwiches; "these were families with children who were on the child protection register for failure to thrive". (Community Care, August 24, 2000, p.12).

  4.2  It also, incidentally, has to be judged in terms of the costs of managing the fund. There is ample evidence that social fund staff broadly dislike the stress and tension generated by a scheme which is predicated largely on refusing help. Despite the persistent defence of the fund by Governments, the management of the fund has in reality presented enormous financial and administrative problems for the DSS and for the relevant Minister. Formal accounts have been sent back twice by the Auditor General amidst accusations of mismanagement, and other sets of accounts qualified; reported costs of administering the fund have sometimes exceeded 50 per cent of actual expenditure. In 1998-99 the total cost of administering the fund was £215 million, ie about 35 per cent of gross expenditure, but considerably in excess of net expenditure that year of £184 million. Much administrative and managerial time has been spent in coping with, initially, an ineffective computer system, then with attempting to manage underspends, then managing overspends on inadequate budgets, recently in attempting to move money between offices in response to models of predicted demand and in order to keep the fund as a whole within national spending limits, and more recently still in administering a complicated set of arrangements for calculating local eligibility from a complex set of criteria. These issues have continually led to a tension between consistency of policy and practice within offices and consistency between offices and have fed into the image of the fund as a lottery. The process of managing reviews and complaints has itself also become extraordinarily complex and resource-consuming and public resources have also been committed to a series of expensive judicial reviews.


  5.1  The existence of one-off payments schemes is itself a formal—though tacit—acknowledgement that social assistance benefit levels are inadequate for even the most modest day-to-day living. The evidence summarised above and reported in greater detail in the accompanying report suggests that Government has only dealt with one of the recurring problems of one-off payments scheme—that of containing expenditure—but that the cost of doing so has been met overwhelmingly by the poorest people in our society. The costs of removing the one-off payments scheme altogether—by providing social assistance recipients with a weekly income which is adequate to live on—has however been beyond the political will of all Governments since the first additional payments scheme was introduced in 1934.

  5.2  The best hope for reform at present is probably to re-establish a scheme based primarily on grants. My original detailed proposals for reform in 1992 were costed at about £675 million. Allowing for some modest inflation in expenditure since that date, the present gross cost of a scheme based on my proposals would be of the order of £800 million, or less than 1 per cent of the current social security budget. This should be set against, at least, net expenditure last year of £184 million and the possibility of additional savings in administrative, appeals and computing expenditures. Overall, then, a reformed scheme might "cost" not much more than one half of one per cent of existing social security expenditure; the "savings" would be a political recognition that the present Government was indeed committed to the reduction of poverty and elimination of social exclusion. Any Government committed to the abolition of poverty may care to recall the words of a less-politically committed organisation:

        "We make no apology for repeating our firm conviction that the poorest and most vulnerable people in our society should be protected, whatever sacrifices have to be made by the rest of the community".[11]

  The overwhelming conclusion of a huge range of rigorous research evidence is that the social fund exacerbates rather than ameliorates the position of the poorest in society. The Government is, at present, alone in denying this.


  Becker, S and Silburn, R, (1990), The New Poor Clients, Final report of the BRU on the social fund, Benefits Research Unit, Nottingham.

  Children's Society, (1996), Out of pocket, Children's Society, London.

  Cohen, R, Coxall, J, Craig, G. and Sadiq-Sangster, A, (1992), Hardship Britain, Child Poverty Action Group, London.

  Craig, G, (1992), Replacing the social fund: a structure for reform, Joseph Rowntree Foundation/Social Policy Research Unit, York.

  Huby, M and Dix, G, (1992), Evaluating the social fund, HMSO, London.

  Social Security Advisory Committee, (1992), The social fund: a new structure, HMSO, London.

  Social Security Consortium, (1989), Your flexible friend?, SSC, London (ed. G Craig).

  Social Security Research Consortium, (1991), Cash limited: limited cash, SSRC, Lancaster.

17 January 2001

7   Robin Cook, Shadow Health and Social Security Spokesperson, December 1987: "A New Assault on Poor". Back

8   Paul Flynn, Shadow Social Security Spokesperson, September 1990. Back

9   Peter Lilley, Secretary of State for Social Security, July 1993. Back

10   Harriet Harman, Secretary of State for Social Security, July 1997. Back

11   Social Security Advisory Committee, Second Report, 1994, para. 1.5. Back

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