Select Committee on Social Security Appendices to the Minutes of Evidence


Memorandum submitted by Simon Rahilly, Liverpool John Moores University (SF 23)


  1.  Benefit levels of income are inadequate to meet costs which arise occasionally because of the need to purchase essential items, such as furniture.

  2.  People on low incomes are more likely to be excluded from access to credit, or to have to pay more for their credit.

  3.  Credit is very likely to turn to debt.

  4.  There continues to be a need for the state to assist people on low incomes to meet the cost of essential, but occasional, items.

  5.  This assistance should be delivered in a way that is consistent with other objectives (eg tackling social exclusion). It could also be delivered in a way that was more consistent with "welfare to work".

  6.  Benefits should be increased to include a small weekly amount to help pay for essential, but occasional needs. This amount could be set aside and either held by the Benefits Agency or paid to a third party such as a credit union. The amount should relate to the number of people in the claimant's family.

  7.  Claimants should have the right to access the sum "saved" when they either leave benefit, or when they need money to pay for an essential item. Any additional amount needed to meet a reasonable cost of an essential item could be loaned and repaid from future amounts set aside from benefit.

  8.  The Social Fund should not be restricted to those on benefit. Anyone with a low income should be able to obtain loans to meet the cost of essential items. The rate at which these loans would be repayable would be determined by the extent to which their income exceeds benefit levels.


  In the 1970's Simon Rahilly was involved in welfare rights and community development. When the Social Fund was introduced he was a member of the Social Security Research Consortium, which carried out some early research monitoring the introduction of the Social Fund and its impact upon claimants, social workers, and advice agencies. For the past 12 years he has worked at Liverpool John Moores University, where his duties have included being the course leader for the University Certificate Course of Professional Development in Welfare Rights at John Moores University. This is a post-experience course run over 20 days, which aims to enable those working in the provision of welfare rights advice to enhance their skills, knowledge and understanding.

  Recent research has included a study on Poverty in Halton, and current research (with Paul Jones) is looking at the credit options available to and chosen by people on low incomes. This is a local study which is sponsored by the Coop Bank. Recently published work includes a chapter entitled "Social Security, Money Management and Debt" which was published in a book edited by Neville Harris: Social Security Law in Context, (2000), Oxford University Press, 0-19-876307-7 (Hbk) and ISBN 0-19-876308-5 (Pbk). A copy of a draft of this chapter is attached.[29]


  Criticisms of the discretionary Social Fund have been well rehearsed, and centre around four of its central features- namely the use of discretion, the budgetary limits, the significance of loans and the lack of right to an independent appeal.

  A fundamental starting point is to consider the adequacy of benefit rates and the expenditure which is intended to be met from that income. Supplementary benefit specified the weekly items that were expected to be bought from that benefit, and a system of exceptional needs payments allowed for assistance with other items. Income Support contains no such outline of what the benefit should cover, but the replacement of exceptional needs payments by a mainly loans based Social Fund leads to the conclusion that claimants are expected to budget for every eventuality out of their benefit income. Yet this is an unrealistic expectation.

  Discretion makes the Social Fund extremely expensive to administer. It contributes to the uncertainty of claimants, and unhealthy queues and atmospheres within benefit offices, and only serves to alienate and remove all sense of dignity. Yet the use of directions means that in many cases there is, in fact, no real discretion. (Thus most Community Care Grants are refused because Direction 4 is not satisfied). The rules exclude those without entitlement to a means tested benefit to either Community Care Grants or Budgeting Loans. This may exclude those with low incomes from wages as well as those with contributory benefits which are only just above the means tested benefit levels.

  The budgetary limits contribute to the accusation that the fund is a lottery, with the outcome of an application being determined in part by when an application is made and in part by where it is made. Applications are refused even though they meet the criteria.

  The number of applications suggests that people do want to be able to take out a loan from the Benefits Agency. Whilst people on low income will often try to borrow from family and friends, a Social Fund loan, with no interest, may represent the best possible way to purchase essential items without which social exclusion would be even more stark. Alternative strategies may well include private sector loans with unacceptably high rates of interest, and the very real lack of options available to people on benefit may well contribute to fraud. There is a real concern about the rates of repayment for Social Fund loans, which are higher than for the direct payments allowable for other debts, and which significantly reduce disposable income and thus contribute to greater poverty.

  Whilst the Social Fund has been criticised because there is no independent appeal, the appeal arrangements do contain two positive features. Firstly the applicant has the right to discuss the decision with the decision maker, and secondly the Social Fund Inspectors provide for some sort of external check upon the quality of local decision making. However, apart from cost, there can be no real reason for continuing to exclude Social Fund decisions from the jurisdiction of the Appeals Service.


  The Social Fund could be improved by reducing the significance of discretion, reducing rates of repayment which serve to reduce disposable incomes to unacceptably low levels, and by widening access. The move towards a "fact based approach" for Budgeting Loans has represented a real improvement. The Social Fund could draw from some of the positive features of the arrangements for direct payments.

  Regular saving on low levels of income is extremely difficult. Yet this could be possible if benefit levels were increased to recognise the fact that everyone will have occasional (though essential) one-off financial needs, in addition to the usual weekly expenditure. Most Social Fund expenditure is for household items such as furniture and cookers. An amount (of the order of £2, plus an additional £1 for each additional member of the claimant's benefit unit) could be set aside, to be called upon when needed. This could also be paid to a third party such as a credit union to help maintain or establish regular active saving whether on or off benefits. The reasonable cost of essential items could then be met, when required, from any accumulated sums. Where these are insufficient, then additional amounts could be advanced as a loan. Repayment could be based upon the weekly figure which is being set aside, plus the amount that can be paid direct from benefit for arrears (currently £2.65).

  This facility should also be available to other people on low incomes. It is a mistake unnecessarily to distinguish between the two groups, and the reality is that many people will move between the two, with periods on benefit alternating with periods in work. To be consistent, government policy should remove rules which appear to present barriers in moving from benefit to work. Repayment could be determined by reference to the extent to which the applicant's income exceeds benefit levels.

  It may be that separate provisions are needed to meet community care objectives, and that funding should be made available to those organisations with statutory duties in this area.

  These suggestions do not obviate the need to retain some sort of facility for crises, such as those covered by the current Crisis Loans. Interestingly, these are already available irrespective of income source. They are paid in emergencies, often when the applicant has been left with no money whatsoever, and are often used to buy day to day items such as food.


  The introduction of a fact based approach to Social Fund Budgeting Loans has gone a significant way to meeting some of the criticisms that have been levelled against the discretionary Social Fund ever since it was first proposed. It has reduced the element of discretion and the associated diversion of resources into decision making.

  Criticisms of the Social Fund have been well rehearsed, and are not repeated here. Instead this short submission attempts to indicate some ideas for possible changes that could be introduced that might help reduce social exclusion, reduce unnecessary debt and suffering that is so often the consequence of expensive credit taken out by people on low incomes. In being "available to all" it will remove the need to retain the poor law principle of lesser eligibility.

  The ideas presented within this brief submission will clearly have cost implications. Whilst these have not been quantified, any calculation should take into account the reduction in administrative costs as well as a reduction in the very considerable costs associated with exclusion when there is no legitimate and affordable way to access essential items.

Simon Rahilly, Senior Lecturer

School of Law and Applied Social Studies

Liverpool John Moores University

January 2001

29   Not printed. Back

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