Memorandum submitted by Debt on our Doorstep
(SF 38)
SUMMARY
1. Debt on our Doorstep is a national alliance
of organisations and groups co-founded by Church Action on Poverty
and Money Advice Association which campaigns for change to relieve
the burden of debt on the poorest and to promote solutions to
financial exclusion in the UK.
2. Despite consistent opposition to the
discretionary element of the existing Social Fund system by welfare
rights advice agencies and the anti-poverty lobby, the role of
the Social Fund has not been fundamentally reviewed by the new
Labour Government.
3. The move away from single payments and
towards loans as opposed to grants has caused many people to turn
to the alternative credit market for essential needs and has contributed
to the growth of financial exclusion in the UK.
4. In February 2000 it was reported that
709,000 claimants had an average of £9.41 deducted from their
benefits each week to repay Social Fund loans. Deductions of this
size lead to increasing pressure on the weekly budget, and to
an ability to pay ongoing liabilities or for other essential but
irregular expenditures.
5. Even where a claimant continues to borrow
from the Social Fund on an interest free basis, there will inevitably
come a time when the fund rejects their application on the basis
that their borrowings have reached the upper limit.
6. The numbers of people turning to door
to door lenders has increased dramatically in recent years and
Provident Financial, the largest home credit company, has seen
its pre-tax profits on home credit services soar from £88
million in 1994 to nearly £1.5 billion in 1999.
7. Despite increases in benefits for children
the current level of social security is not adequate to enable
families to meet all basic needs and grants rather than loans
are needed.
8. Deductions from weekly benefit to pay
off Social Fund loans mean that families have even less money
with which to pay for necessities such as food and heating and
this has an impact on health related issues.
9. Reports indicate high levels of indebtedness
particularly amongst one-parent families, which leads to stress
and less money available to meet everyday needs.
10. There is a significant shortfall between
the current level of income support and a minimum income standard
estimated by the Family Budget Unit. A family on income support
is unlikely to have the cash to pay for expensive items without
recourse to loans.
11. Current reforms seem to be geared towards
encouraging claimants to apply for loans instead of grants.
12. The Government has failed to address
the fundamental nature of the fund and its links with the growth
of financial exclusion.
13. A number of short term reforms are needed
including additional grants to meet specific needs, increasing
the budget for grants, removing the list of excluded items for
which a social fund payment cannot be made and removing the £500
capital rule from the Sure Start Maternity Grant.
14. As well as reassessing the nature of
the Social Fund, links should be made with the developing agenda
on financial exclusion in other areas, and in particularly with
initiatives in the DTI and the Treasury on extortionate credit
and credit union development.
15. The Government should develop a joined-up
strategy for tackling debt and promoting financial citizenship
as part of an interim programme of assistance to be phased out
in 2020 when the Government meets its poverty eradication targets.
16. A minimum income standard, sufficient
to keep people out of poverty, should be established by government
as a target for benefit rates. But until such time as benefits
reach an adequate level a variety of grants will be needed to
supplement the weekly benefit allowances.
SUBMISSION
1. Background to Debt on our Doorstep
1.1 Debt on our Doorstep is a national alliance
of local activists, community groups and voluntary/public sector
organisations. The network has come together to campaign for change
to relieve the burden of debt on low-income households and to
promote solutions to the growing problem of financial exclusion
in the UK. A list of members is attached.
1.2 The network aims to promote unity and
solidarity amongst campaigners and those affected by poverty and
debt and to put the case for a comprehensive Government strategy
to tackle debt and promote economic citizenship.
1.3 The campaign aims to address five key
areas as part of its wider objectives:
— extortionate and irresponsible lending
— the failing Social Fund
— the promotion of credit unions and
other community finance initiatives
— the social responsibilities of high
street banks and
— punitive debt recovery methods.
1.4 The co-founders of the network are Church
Action on Poverty (CAP), an ecumenical anti-poverty pressure group,
and the Money Advice Association (MAA), a professional body for
money advisers in England and Wales. The campaign has its roots
in CAP's "Agenda for Change"—a programme for action
based on many years of intensive work with communities around
the country listening directly to the voices of poverty describing
their experiences and concerns. The Agenda for Change identified
debt as a key priority for action.
1.5 In 1999 CAP joined forces with MAA,
who had been instrumental in launching an early day motion (252)
about financial exclusion, and Debt on our Doorstep was formally
launched in the House of Commons in April 2000 year. A Parliamentary
Resolution (EDM 644) on Debt and Financial Exclusion, sponsored
by Evan Harris MP, was launched at the same time.
2. The present Social Fund system
2.1 The present Social Fund system was introduced
in 1988 as part of the Fowler Social Security Reforms (1986) and
replaced the Single Payments system. The objective of the new
system was to cut the Social Security budget. There was however
a general recognition that claimants needed access to a cash safety
net because the basic level of means tested benefit would not
allow them to budget for large (irregular) items or meet the costs
of major life changes, such as resettlement in the community following
a period of stay in care.
2.2 The new system was composed of two distinct
elements: the discretionary fund providing Community Care Grants
and Budgeting Loans; and a mandatory fund providing grants for
funeral and maternity expenses. Debt on our Doorstep is primarily
concerned with the discretionary element of the Social Fund.
2.3 Soon after the Conservatives introduced
the new system, the Labour spokesperson Robin Cook declared, "I
would like to see the Social Fund go. . . . If a family needs
a new cooker . . . it needs a single payment." And in 1994
the Commission on Social Justice, set up by John Smith, found
that "Perhaps the most soul-destroying aspect of Income Support
is the Social Fund."
2.4 Despite consistent opposition to the
fund's nature by welfare rights advice agencies and the anti-poverty
lobby, the Social Fund's role has not been fundamentally reviewed
by the Government.
2.5 Debt on our Doorstep believes that the
move away from single payments and towards loans as opposed to
grants has left many people with no option but to turn to the
alternative credit market in order to raise money to meet essential
needs. In our view this has contributed significantly to the explosion
in the numbers of households experiencing financial exclusion
in the UK. Another consequence of the failing Social Fund is that
money is leaving the poorest communities as profit for door to
door lenders and other "alternative" credit providers
who routinely charge excessive rates of interest.
3. The current system—loans not grants
3.1 Expenditure on the Social Fund illustrates
that the current system is concerned primarily with the administration
of loans as opposed to grants.
3.2 Table 1: Spending on the Discretionary
Social Fund 1995-1999
| Year | Crisis Loans (£m)
| Budgeting Loans (£m) | Community Care Grants (£m)
|
| 1995-96 | 54 | 250
| 96 |
| 1996-97 | 52 | 284
| 96 |
| 1997-98 | 54 | 311
| 97 |
| 1998-99 | 59 | 344
| 98 |
| 1999-2000* | N/a | N/a
| N/a |
| 2000-01[1]
| 494 | 100 |
| | |
|
3.3 The percentage increase for expenditure on budgeting
loans over the period 1995-99 was 37.6 per cent. Community Care
Grant spending over the same period grew by only 2 per cent.
3.4 Combined loans as a proportion of the total budget
have increased from 76 per cent in 1995-96 to 83 per cent in 2000-01.
3.5 Table 2: Numbers receiving grants/ loans
| Year | Crisis Loans
| Budgeting Loans | Community Care Grants
|
| 1996-97 | 765,000 | 923,000
| 251,000 |
| 1997-98 | 803,000 | 916,000
| 234,000 |
| 1998-99 | 866,000 | 935,000
| 225,000 |
| 1999-2000 | 1,950,000
| 219,000 |
| | |
|
3.6 In 1996-97, 1,939,000 people received assistance
from the discretionary social fund. 87 per cent of these received
a loan. In 1999-2000, although the numbers receiving assistance
had increased to 2,169,000, the proportion receiving loans had
also increased to 89.9 per cent. The numbers of people receiving
grants has fallen year on year since 1996-97. Nearly one in five
applications for a grant are refused.
4. The relationship between the Social Fund and the alternative
credit market
4.1 The experiences of claimants in touch with the Debt
on our Doorstep network indicates that there is a clear relationship
between the emphasis on, and the recovery of, loans from the Social
Fund and the rise in the numbers of people turning to "alternative"
credit providers.
4.2 The following case study was reported to a CPAG group:
Lone parent with mental health problems has one child.
Child is over 12 and has had a series of growth spurts but could
only get a £20 grant from the Education Welfare section of
the local authority. Also needed: a hoover (eventually got a second
hand one with the help of the adviser); a washing machine (eventually
got one through a charity); and a tumble drier (no place to dry
clothes). She cannot afford to have heating high or to heat all
rooms and is still without a drier.
She is repaying a social fund loan at £4.28 per week.
She also has to borrow from door to door moneylenders in order
to make ends meet and has outstanding debts of £4,000. Has
electric heating, which is more expensive. There is no chance
of her being able to return to work because of health problems.
Need for extra help with child's clothing due to growth spurts,
and household appliances needed. Cannot afford to repay loans.
4.3 In February 1999, Roy Hattersley commented in the
Guardian in a piece entitled "Anti-social fund":
Two of the last half dozen "cases" to visit my
Birmingham constituency advice bureau were Social Fund applicants
whose claims had been rejected. One was an elderly man who wanted
a warm coat for the prolonged winter. He was turned down out of
hand when it was discovered that he already possessed a leather
jacket. Alternative sources kitted him out at an Oxfam shop.
The second case was more difficult to solve. A single mother—middle-aged,
deserted and with two teenage sons—had lived for years in
a squalid privately-owned flat which claimed to be furnished.
Local councillors persuaded a housing association that she should
be given a priority tenancy in a decent house. However she had
no furniture. She asked the Social Fund for a couple of beds and
bedding, a table, four chairs and a three piece suite—all
she assumed bought cheap from one of those shops which piles battered
furniture on the pavement outside its dirty window.
The application for a three-piece suite—a symbol
of middle class affluence—was rejected outright. So was
the idea of a grant for bed and bedding. The Social Fund did,
however, offer to make her a loan. The lady, living on income
support, found the idea of weekly repayments too frightening even
to consider.
I told her and I told the old man who needed the overcoat
that soon life would change for the better. A Labour victory was,
I predicted, a certainty and no Labour government would tolerate
the multiple iniquities of the Social Fund. I vulgarised my Guardian
article with a rhetorical question. What sort of a society is
it that will not buy a winter coat for an old man with holes in
his shoes?
Unfortunately, only one of my prophecies was fulfilled.
We have gone through Harriet Harman, Frank Field and now Alistair
Darling and the Social Fund remains. The question which historians
will have to answer is how fundamentally decent people can be
party to so much unnecessary suffering when for a million or two—a
drop in the public expenditure bucket—the lives of Britain's
unhappiest families could be immensely improved.
4.3 In February 2000 it was reported that 709,000 claimants
had an average of £9.41 deducted from their benefits each
week to repay Social Fund loans. More than half of these were
lone parents, and almost a third were disabled people.
4.4 Deductions of this size (which can be as much as
between 15 per cent and 25 per cent of Income Support payments)
inevitably lead to increasing pressure on the weekly budget, and
to an ability to pay ongoing liabilities or for other essential
but irregular expenditures. The claimant is faced with a choice
of making another application to the Social Fund (thus increasing
the amount to be repaid directly from benefit) or taking out credit
elsewhere, which, although more expensive in the longer term due
to the addition of interest, may result in a lower weekly repayment
rate in the short term.
4.5 Even where a claimant continues to borrow from the
Social Fund on an interest free basis, there will inevitably come
a time when the fund rejects their application on the basis that
their borrowings have reached the upper limit, or because the
deductions from benefit are considered to be unsustainable. The
staggering increase in the numbers of social fund applicants being
refused a loan on the basis that they are too poor to repay bears
witness to this. Whilst the overall number of Social Fund claimants
has risen by 35 per cent in 4 years, the number of loan applications
refused on the grounds of `inability to repay' increased from
4,856 in 1997-98 to a staggering 362,000 in 1999-2000.
4.6 Evidence that claimants go through this process of
attempting to obtain assistance from the Social Fund but end up
having to borrow from high interest private sector lenders was
also contained in the DSS report published in November 2000—`Saving
and Borrowing: use of the Social Fund Budgeting Loans and Community
Credit Unions'. The report found that:
4.7 "Most people used some other form of credit
alongside the Budgeting Loan scheme or loans from a credit union.
. . . Most customers were women, who bought children's shoes and
clothes, as well as bedding and other household equipment. . .
. Weekly collected credit was by far the most common [of the five
main sources of alternative credit]. . . . Several people [of
the 37 people interviewed] had borrowed in the secondary market,
having applied for a Budgeting Loan and failing to get the money
they needed.
4.8 This is clearly illustrated by looking at the numbers
of customers now turning to door to door lenders. Over the past
four years, the largest door to door lending company in the UK,
Provident Financial, has increased its customer base dramatically
to challenge the Social Fund as a provider of loans (see graph
below). It has also seen its pre-tax profits on home credit services
soar from £88 million in 1994 to nearly £1.5 million
in 1999.
4.9 Other door to door lending companies in the UK have
also seen the numbers of customers rise during these years. The
figures indicate that the sector as a whole is growing, as opposed
to merely reflecting an individual company increasing its share
of a constant market.
5. The future of the Social Fund—why claimants need
grants rather than loans
5.1 Despite increases in benefits for children the current
level of social security is not adequate to enable families to
meet all basic needs. Families at some time need access to a cash
safety net. More expensive needs, unforeseen expenses or meeting
a lot of needs at one time cause problems for families with children,
particularly if they are living on means-tested benefits. Families
are forced into debt, go without or use money that would otherwise
have been used to pay for basic necessities.
5.2 The current Social Fund system does not work—it
is failing the poorest dismally. In addition, the high administrative
costs, the inconsistency in awarding grants and loans from area
to area, and the very high refusal rate for grants, there are
a number of key areas which point to the need for grants rather
than loans.
5.3 Firstly, the 1998 Acheson Report recommended that
"a high priority should be given to policies aimed at improving
health and reducing health inequalities in women of child bearing
age, expectant mothers and young children". Financial deprivation
is closely linked to poor health. Social fund loans with the consequential
deductions from weekly benefit mean that families have even less
money with which to pay for necessities such as food and heating.
5.4 Secondly, debt creates stress and again reduces the
amount of money available to meet everyday needs. National Council
for One Parent Families focus groups reported a large number of
social fund debts up to £13 per week. Other research showed
that 78 per cent of lone parents returning to work had debts including
social fund debts.
5.5 And, finally, a number of independent agencies have
attempted to establish minimum income standards, including Breadline
Britain whose surveys use a `consensual' approach, and the Family
Budget Unit who use a `budget' approach in their report `Low Cost
but Acceptable' (LCA). Based on 1998 prices, the LCA report produced
the following weekly budgets:
£154.04 per week for a family with two children
under 11
£122.21 per week for a lone parent with two
children under 11
5.6 Using the LCA model there is a significant shortfall
between the current level of income support and the estimated
1998 minimum income standard. Even if benefits are considerably
increased families will still find it difficult to pay for more
expensive essential items in the home. In addition to this, the
LCA model calculates the weekly cost of essential items based
on total value divided by estimated lifetime. But in real terms,
a family on income support is unlikely to have the cash to pay
for these items without recourse to loans either from the social
fund or from other sources.
6. Current reforms
6.1 Some reforms have been made by the current Government.
These are either cosmetic in nature—i.e. simplification
of the application forms for budgeting loans, or have attempted
to remove some of the discretion given to Social Fund officers
in the determination of budgeting loan applications by introducing
a more formulaic approach.
6.2 The result of the first change appears to encourage
claimants to apply for loans instead of grants—and indeed,
the rules now no longer provide that an application is to the
fund as a whole (i.e. that officers must consider an applicant
for both a loan and a grant when an application is received).
The loan application form (having been simplified) is much easier
to complete than previously and gives rise to far faster decision
making.
6.3 This is a positive development. However, in the absence
of improvements to the decision making process in respect of grants
(where a more detailed booklet has to be completed and there are
significant delays in respect of decisions), claimants are effectively
being offered an incentive to apply for a loan instead of a grant.
6.4 The Government has failed to address the fundamental
nature of the fund and its links with the growth of financial
exclusion, to do so would require a movement back towards an emphasis
on grants. There are a number of improvements that could be made
in this respect in the short term.
7. Short term reforms
7.1 New grants to meet particular needs should be introduced
as a matter of urgency. They should be simple to administer, paid
where a person satisfies certain set conditions and there should
be a right of appeal against an unfavourable decision. The payments
should be seen as part of a necessary cash safety net. Examples
of the kind of provision that is needed include:
7.2 Furniture and Household Equipment Grant: To be paid
when a family is allocated housing or moves home and needs a range
of household furniture and equipment including electrical /gas
appliances. This is a `lumpy' cost that cannot be met from weekly
benefit allowances.
7.3 Pregnancy Grant: A payment to the mother, available
from the date that the pregnancy is confirmed, to meet the additional
requirements and costs of pregnancy, in particular, extra dietary
needs and maternity clothing. It is not primarily designed to
meet the costs of the new child. Such a payment could be made
in more than one instalment. The additional support would be consistent
with the Acheson Report recommendations and the government's desire
to encourage contact with health professionals. An alternative
would be to pay a pregnancy premium as the Maternity Alliance
have recommended.
7.4 Household Safety Grant: A lump sum award to enable
families who have been on benefit for six months or more to replace
electrical / gas appliances in the home. A payment might be made
before the person was on benefit for six months if the need was
urgent and other resources were not available. Claimants should
have access to electrical and gas appliances which are safe and
of good quality. Unsafe electrical and gas equipment puts all
members of the household at risk. As more costly items in the
household budget it is difficult for claimants to save for these
out of weekly benefit.
7.5 Development Grants: These could be paid when (a)
the child reaches the age of one and at three years; (b) the child
starts school (aged 4/5); and (c) the child moves to another school
(this is likely occur at the ages of 8 and 11 depending on the
structure of schooling in a particular area). Some parents are
faced with additional bunched expenses when starting school or
moving schools; the grants will also go towards the needs children
have as they grow and develop which can impose disproportionate
financial burdens on parents. This is consistent with the expenditure
costs illustrated in the Family Budget Unit's minimum income standards
budget and the conclusions of the Acheson Report.
7.6 As well as considerably increasing the budget for
grants, the list of excluded items for which a social fund payment
cannot be made should be removed except where another authority
has a duty as opposed to a power to provide them. Also, the £500
capital rule should be removed from the Sure Start Maternity Grant.
8. Addressing Financial Exclusion—A Joined Up Strategy?
8.1 In a recent debate on Poverty and Indebtedness at
the House of Commons (November 2000), Angela Eagle agreed that
a "cross-departmental approach" was needed to tackle
debt and financial exclusion. As well as reassessing the nature
of the Social Fund, the Government should be urged to make links
with the developing agenda on financial exclusion in other areas.
In particularly a joined-up strategy for tackling debt and promoting
financial citizenship should address work being conducted by the
DTI and the Treasury with respect to extortionate credit, credit
union development and plans for developing the Post Office network.
8.2 A number of commentators have suggested putting the
Social Fund to more imaginative uses—for example, devolving
the grant giving functions to credit unions, or turning the Fund
into a municipal bank. It is worth exploring some of these creative
solutions to joining up the Social Fund with initiatives in other
areas. However, there needs to be an immediate injection of resources
in order to reverse the growth of financial exclusion in the short
term and relieve some of the burden of debt from the poorest.
8.3 A minimum income standard, sufficient to keep people
out of poverty, should be established by government as a target
for benefit rates. Work needs to be done to explore modern family
needs and their relationship to benefit levels. But until such
time as benefits reach an adequate level there will be a need
to retain a variety of grants to supplement the weekly benefit
allowances.
8.4 In order to make community finance more widely accessible,
investment is needed, not only in the long-term sustainability
of the credit union movement, but also to enable people with existing
debts to join credit unions. Some credit unions, in conjunction
with local authorities have piloted `debt redemption' schemes.
In exchange for having the debt `bought' by the scheme, the debtor
is required to become a member of the associated credit union,
and make regular payments that go towards repayment of the (interest
free) debt `buyout' and future savings.
8.5 Not only have debt redemption schemes been proven
to help tackle financial exclusion, they also allow debts to be
bought from private sector loan companies like Provident Financial
thus ensuring that funds invested remain in the local economy
and are re-circulated over time. An immediate investment of £250
million from central government distributed via local authorities
would give a significant boosts to credit union development locally,
and would help stem the siphoning of community funds resulting
from high profit levels of consumer credit companies.
8.6 A comprehensive strategy on debt and financial exclusion,
including an enhanced and expanded Social Fund, could be part
of an interim programme of assistance to be phased out in 2020
when the Government meets its poverty eradication targets. Social
Fund Grants and other measures should be seen as a means of ensuring
that children obtain the right to an adequate standard of living,
in accordance with the UN Convention on the Rights of the Child.
| ACE Credit Union Services | Bristol Debt Advice Centre
|
| Association of British Credit Unions Ltd |
CAP Cymru |
| Baptist Union of Great Britain | CAP North East
|
| Barnardo's | Catholic Agency for Social Concern
|
| Birmingham CU Development Agency | Chelmsford Diocese
|
| Birmingham Money Advice & Grants | Child Poverty Action Group
|
| Board of Mission—Church in Wales |
Children's Society |
| Bristol C.C. Money Advice Service | Christians Against Poverty
|
| Church Action on Poverty | National Housing Federation
|
| Church and Nation | National Justice & Peace Network
|
| Church & Society—URC | NCH Action for Children
|
| Church Urban Fund | NE Thames CU Development Agency
|
| Citizen's Advice, Scotland | New Economics Foundation
|
| Committee on Church and Nation, Scotland |
New Horizons Saving & Loan Scheme |
| Credit Action | Nottingham CU Development Agency
|
| Dundee Money Advice Support Team | OXFAM
|
| Help the Aged | PRIME |
| Huge Move | Quaker Social Action
|
| Joseph Rowntree Housing Trust | Religious Society of Friends (Scotland)
|
| Local Government Against Poverty | Scottish Churches Parliamentary Officer
|
| LGAP (Scotland) | Scottish Federation of Housing Association
|
| Lothian Anti-Poverty Alliance | Sheffield CABx Debt Support Unit
|
| Mansfield District Citizens Advice Bureau |
Social Enterprise London |
| East Mids CU Development Support Agency |
Social Justice Desk, Conference of Religious Tearfund
|
| Family Service Units | The Exchange
|
| Fawcett Society | The Five Lamps Organisation
|
| Money Advice Association | The Poverty Alliance
|
| Movement for Christian Democracy | The Springfield Community Flat
|
| National Association of Credit Union Workers
| UK Coalition Against Poverty UNISON |
| West Glasgow Against Poverty YMCA England
|
| |
January 2001
1
Budget for the year. Back
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