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Poor families' loan interest fear Poor families' loan interest fear
(about 1 hour later)
Low-income households applying for emergency loans from the state could face interest rates of up to 26.8%.Low-income households applying for emergency loans from the state could face interest rates of up to 26.8%.
Ministers are considering reforms to the social fund, which extends £500m a year in interest-free loans to some 1.2 million benefit claimants.Ministers are considering reforms to the social fund, which extends £500m a year in interest-free loans to some 1.2 million benefit claimants.
The Tories said they were acting like "loan sharks" by suggesting credit unions take over the lending facility and charge up to 2% per month interest.The Tories said they were acting like "loan sharks" by suggesting credit unions take over the lending facility and charge up to 2% per month interest.
The government said it wanted to make the fund more widely available.The government said it wanted to make the fund more widely available.
A Department for Work and Pensions spokeswoman said: "The social fund provides affordable credit for people who need it.A Department for Work and Pensions spokeswoman said: "The social fund provides affordable credit for people who need it.
"We are now exploring how we can make it more widely available to people in work as well as on benefits."We are now exploring how we can make it more widely available to people in work as well as on benefits.
"We want to make sure people in need do not turn to illegal loan sharks who can charge interest of 1,000%." [This] would have people in dire financial circumstances facing an annual APR which is more than twice the current rate of a subprime mortgage Jenny WillottLiberal Democrats"We want to make sure people in need do not turn to illegal loan sharks who can charge interest of 1,000%." [This] would have people in dire financial circumstances facing an annual APR which is more than twice the current rate of a subprime mortgage Jenny WillottLiberal Democrats
No decisions had been made and the government would do nothing to create difficulties for low-income families, she added.No decisions had been made and the government would do nothing to create difficulties for low-income families, she added.
The social fund was set up to help needy people, many of them elderly or disabled, meet the costs of items such as cookers, cots and funerals.The social fund was set up to help needy people, many of them elderly or disabled, meet the costs of items such as cookers, cots and funerals.
Details of the proposed changes were released in a consultation document.Details of the proposed changes were released in a consultation document.
It sets out how the new interest rate would see the average budgeting loan, of £433.30, incurring interest totalling £47.80.It sets out how the new interest rate would see the average budgeting loan, of £433.30, incurring interest totalling £47.80.
This would take an additional four weeks to pay off, at the average loan repayment rate of £10.54 a week.This would take an additional four weeks to pay off, at the average loan repayment rate of £10.54 a week.
'Simply outrageous''Simply outrageous'
Shadow work and pensions secretary Chris Grayling said: "These proposals are simply outrageous.Shadow work and pensions secretary Chris Grayling said: "These proposals are simply outrageous.
"Thousands of people are losing their jobs every week, and it is nothing short of extraordinary that the Government's answer is to propose abandoning interest-free emergency loans, and start charging 27% a year instead."Thousands of people are losing their jobs every week, and it is nothing short of extraordinary that the Government's answer is to propose abandoning interest-free emergency loans, and start charging 27% a year instead.
"Gordon Brown and James Purnell are behaving like loan sharks.""Gordon Brown and James Purnell are behaving like loan sharks."
Liberal Democrat work and pensions spokeswoman Jenny Willott said the proposal was "totally unacceptable".Liberal Democrat work and pensions spokeswoman Jenny Willott said the proposal was "totally unacceptable".
"What the Government is proposing would have people in dire financial circumstances facing an annual APR which is more than twice the current rate of a sub-prime mortgage."What the Government is proposing would have people in dire financial circumstances facing an annual APR which is more than twice the current rate of a sub-prime mortgage.
"Providing advice and information about savings and money management is all well and good but when people are so desperate that they need a crisis loan, it's just not the right time.""Providing advice and information about savings and money management is all well and good but when people are so desperate that they need a crisis loan, it's just not the right time."