Mr.
Clappison: I am grateful to the Minister for her response.
She correctly set out our attitude. Our amendment was probing, as I
indicated. We want to ensure that, through legislation, social fund
borrowers get a better deal—more financial advice, better
services and so on—and that the same amount of money is
available for them. Those are important considerations.
We do not
seek to put up obstacles, and we do not agree with the approach that
the hon. Member for Rochdale has put forward, or with his description
of this as half baked. If more consultation is needed, more
consultation is needed, and we hope that we can play our part in
that—who knows, we might already have played it! We do not know
yet, but we might have done so constructively. Furthermore, we might
have a contribution to make in the future. However, I agree with the
Minister that it is not ridiculous for the Government to take powers
for something that they might want to do in the future.
Whether the
Government use those powers will depend on the outcome of the
consultation and the various issues that I outlined in my opening
remarks. We might have more to say about this matter in the future but,
for the time being, we are taking a broadly constructive approach. We
want social fund borrowers to get a better deal. I am sure that all
Committee members share the view that more thinking is to come on this
matter. Perhaps some interesting ideas will come forward during our
consideration of amendment 66, which was tabled by the hon. Member for
Warwick and Leamington and which I look forward to discussing. However,
for our current purposes, I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Mr.
James Plaskitt (Warwick and Leamington) (Lab): I beg to
move amendment 66, in clause 13, page 18, line 40, at end
insert— ‘140ZD
Individual social fund
accounts (1) The Secretary of
State may establish a system of individual social fund accounts for
qualifying persons. (2) The
Secretary of State may designate external providers to provide
financial advice to holders of individual social fund
accounts. (3) Individual social
fund accounts shall be used to provide budgeting loans from the social
fund. (4) An individual social
fund account which meets the requirements of the Saving Gateway
Accounts Act 2009 may be designated as a Saving Gateway
account. (5) The Secretary of
State may prescribe the conditions under which a designated external
provider may advance funds to the Secretary of State for the provision
of social fund budgeting
loans. (6) A designated
external provider may make a qualifying loan to an eligible person from
that person’s individual social fund
account. (7) The Secretary of
State may prescribe conditions under which deductions may be made from
an eligible person’s relevant benefits for the repayment of the
amount of the qualifying loan to the individual social fund account of
the eligible person and to recover the allowable costs of the external
provider. (8) The Secretary of
State may make
regulations— (a) to
establish a system of individual social fund accounts and to set out
criteria for qualifying persons under subsection
(1), (b) to specify criteria
for the designation of external providers under subsection
(2), (c) to prescribe the
conditions under subsection (5),
and
(d) to prescribe conditions under which deductions
may be made from an eligible person’s relevant benefits for the
repayment of the amount of the qualifying loan under subsection
(7).’. The
amendment has been trailed, and I will seek to take our debate on the
social fund a little further. We know from our previous debates that
there is something of a consensus that the social fund needs reform,
and the amendment outlines one way in which to take reform further in
the
Bill. In
essence, there are two problems with budgeting loans, which is the part
of the social fund that my amendment would change. The first problem is
that this part of the welfare system is, in my view, entirely passive
in its relationship with our customers, and the second problem is that
it is clearly underfunded.
First, to
illustrate the passive nature of the current provisions, at the moment
an applicant will approach us on the telephone or come into a Jobcentre
Plus office. Their entitlement to a budgeting loan will be considered
and, if approved, a payment will be handed out to the customer. That is
the end of the benefit system’s involvement with that person.
There is no discussion with them about the causes of the financial
situation that brought them in search of a budgeting loan. We give them
no direction on where they might seek further advice to find out more
about how to handle their finances, and we offer no help with future
budgeting. The
second problem is that the fund is underfunded. The Government have
increased the money available in the budgeting fund, which is welcome,
and at the moment we have around £500 million circulating around
the fund—it is paid out and then comes back through deductions
from benefit. However, demand in our communities for the type of
assistance that the budgeting loan gives is greater even than the
£500 million to which the Government have been able to increase
the fund in recent
years. In
the evidence session on 10 February, Martin Narey said:
“The
real urgency is to provide avenues of affordable credit for poor
people...If something could be done on the availability of the
social fund...it could make things dramatically easier for some of
our poorest families.”——[Official
Report, Welfare Reform Public Bill Committee, 10 February 2009; c.
46, Q58.] The
amendment is an attempt to address that challenge.
I estimate
that demand for such financial assistance is about four or five times
greater than the budgeting loan fund is able to meet. That means that
benefit recipients and low-income families are looking to alternatives
to the budgeting loan for credit. Only about 1 per cent. of the
population have access to credit unions, which shows how small the
credit union movement is in our country. Although, thankfully, the
Government are doing a number of things to try to expand it, it is
never going to reach the capacity at which it can be a universal
alternative. If
no credit union is available, where are people going? They are perhaps
going to Provident Financial, in which case they are paying an annual
percentage rate of 189 per cent. on their loan, or they might be going
to a more recent innovation: a new sort of store that allows people to
rent an item and then own it after three years. That is another sort of
credit scheme offered by
companies, such as BrightHouse, but people would be
paying 200 per cent. interest on the loan. People might be going to
organisations such as Payday Loans, which is another fairly recent
company that has come to the United Kingdom from the United States, I
think. It is growing rapidly and charges 1,344 per cent. on the money
loaned. If people are not going to any of the legal options, they could
be visiting an illegal alternative working in their community: a loan
shark whose interest rate we can only guess at, although it is probably
in excess of 1,000 per cent. The repayments sometimes come with
menaces,
too. 7
pm Let
me put things another way. If today has been a typical day, we, through
the DWP, have probably agreed 4,000 budgeting loans worth a total of
£2 million to those who received them. We are asking them to pay
us back £2 million, with no interest, through deductions from
their benefits. Again, if today has been typical, 16,000 people on low
incomes or benefits will have taken out another form of non-bank loan,
the total of which would have been about £8 million. However,
unlike the budgeting loan, under which they would have to pay back
£8 million, they will have to pay back £22
million. That shows the significance of the shortfall and explains why
we need to look at ways in which to expand and recapitalise the
budgeting
loan.
John
Mason: I agree with the hon. Gentleman that arrangements
with no interest are better than paying back huge, horrific amounts of
interest. However, does he agree that people on benefits would be
better off receiving grants rather than
loans?
Mr.
Plaskitt: As the hon. Gentleman knows, there is a grant
element in the social fund. Thankfully, the Government have been able
to expand the facilities that are available to fund the grant part of
the scheme. In our previous debate, we covered the grant elements of
the social fund, but I want to expand the budgeting loan part, which
sits alongside the grant-giving capability of the social fund. If we
are really to address the target that we are about to give ourselves in
statute to abolish child poverty over a given time, increasing the
supply of affordable credit will be a crucial step in achieving that
ultimate objective. When asked, most of the child poverty campaigning
organisations say that the key thing that needs to be done to achieve a
step change in the process towards abolishing child poverty is to
expand affordable credit in our communities. I know that the
Under-Secretary of State for Work and Pensions, my hon. Friend the
Member for Burnley, recognises and understands that already. I welcome
the fact that, through the Bill, social fund reform is under way and
gathering
momentum. As
the Under-Secretary said in the evidence session on 12 February, the
Bill is
“only the
beginning of the journey”.——[Official
Report, Welfare Reform Public Bill Committee, 12 February 2009; c.
74, Q120.] By
tabling the amendment, I am trying to put wind in her sails and to
increase the speed of the journey. I am not trying to put a detailed
scheme in place—that would not be right—but I have set
out a framework for a scheme that deals with the two big problems of
the existing scheme’s passivity and lack of funding. I envisage
that, instead of how the system works at the moment, the
claimant—when going to Jobcentre Plus in search
of help—would be enrolled into a social fund
account. A relationship would then immediately be built with the
individual, and we would not just remain passive towards that person.
The account would give them access to budgeting loans exactly as they
currently exist—I am not proposing that that be
changed—but it would also give them access to free and impartial
financial advice, which it is important to have. Pursuing my suggested
route for bringing in additional capital from an external provider
would give the opportunity for applicants, if appropriate, to take out
an affordable
loan. If
the additional capitalisation came from the Treasury, for example, we
would be simply expanding the budgeting loan resource as it is at the
moment. Realistically, however, we will not see another £2
billion or so coming from the Treasury in the foreseeable future. The
additional funding that I am seeking might come from another external
provider—the clearing banks, for example, might agree to grant
it to the Government as a long-term loan, which the Government might at
some point eventually repay, allowing the additional funds still to be
interest-free. However, we might not get a deal on such terms and the
external provider might want money back for giving us the loan, in
which case I would expect that the kind of loans that would be granted
in that way would carry a rate of interest, but one comparable to those
applied to credit union
loans. It
is important to stress that the existing interest-free element of loans
remains in my amendment, but we would be giving people the opportunity,
if the business model worked, which would of course be conditional, to
gain access to affordable credit in addition to any budgeting loan
scheme. That would have the effect, if the business model worked, of
putting the loan sharks out of business and probably also putting many
of those other organisations that are charging exorbitant interest
rates out of business, which I would welcome. Of course the business
case has to be made, which is why my amendment sets out only a
framework into which a scheme could be dropped, rather than attempting
to design it in any detail. However, it is important that we take the
primary powers to enable us to pursue that route and seek the
appropriate working business
model. I
am simply asking the Minister to go further on the journey of which she
spoke. Many vulnerable families desperately need our help. We could put
a framework in place and then pursue a business model. That it is what
many of the groups that have been speaking to us for many years are
urging us to do, and that would make a dramatic difference to the
prospects for many low-income
families.
Kitty
Ussher: I am extremely grateful to my hon. Friend for his
amendment. He speaks with considerable policy experience and knowledge
in this area. In some ways, we could characterise the amendment as
ahead of its time, which makes my hon. Friend a visionary for putting
it forward. We agree with the spirit of what he is saying but, as I
shall explain, I am not sure that it is the appropriate vehicle for
addressing his policy
proposal. I
agree with my hon. Friend that we need to do more for people whose
finances are precarious, as I said earlier. His description of a system
that needs to move from being passive to being active is entirely
right. A crucial part is providing financial advice and a broader
variety of services, whether through external providers
or, where we can, ourselves. He talked of saving
gateway accounts—I do not want to be pedantic by pointing out
that that Bill is not yet an Act and has certainly not been
implemented. That might be one small way of saying that he is ahead of
his time. Certainly, once that measure is enacted, there will be many
ways for the Government to promote saving gateway accounts to the type
of people who may be applying to us for crisis or budgeting
loans—indeed, there will be a large overlap in those two
cohorts, I am sure—by signposting and so
on. Part
of my hon. Friend’s suggestion was to allow for outside capital
to come into the social fund. Free money is great; I would be
absolutely delighted if anyone externally wanted to capitalise a social
fund and give us a pot of cash that we could lend out without charging
interest and preferably never have to pay back. At this point I am not
convinced that there is a business model that will do that, but if he
can come to me with an organisation that will provide that money, I
will be delighted to receive it, and if he knows more than I do, I will
be happy to hear how that would
work. It
is better for us to be able to enter into an agreement with an external
organisation as we already propose, because, to be frank, it will be a
financial institution and will have greater capital available, perhaps
to migrate people from having a debt to being able to save, which is
the spirit of what my hon. Friend is proposing. I agree that that is
one of the areas in which we are missing a trick at the moment. Our
ultimate goal is for people to be able to put enough money away,
difficult though that of course is on low incomes, or to have other
measures, such as insurance, to avoid the need for a debt in the first
place. However, if they do require a debt, we need to be able to
support and advise them through that
process. I
am asking my hon. Friend to withdraw the amendment. However, as a
direct result of his tabling the amendment, I will take it upon myself
to ensure that the suggestion that he has made—that people with
social fund debts or any other affordable credit debt should be
encouraged in any way possible by the Government to migrate that into a
savings account, current account or saving gateway account—is
taken on board in the appropriate cross-Whitehall discussions that are
taking place on, for example, a people’s bank. He can rest
assured that he has had an effect. I hope that that will be sufficient
for him to withdraw the amendment at this stage and enable us to
continue discussing this worthwhile policy in the months and years
ahead.
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