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State loan charge plan criticised Row over state loan charge 'plan'
(about 1 hour later)
Politicians from all parties have criticised a government proposal to charge interest on emergency state loans given to the UK's poorest people. Politicians from all parties have criticised a government paper proposing to charge interest on emergency state loans given to the UK's poorest people.
Among them were senior Labour MP John McFall, who called it "a joke" and former-Labour leader Lord Kinnock, who said the idea was "going nowhere". The Tories branded the idea to use credit unions "outrageous" and accused ministers of acting like "loan sharks".
Conservative William Hague said it was "astonishing and outrageous" and the Lib Dems branded it "harsh". The government said the reform was "never our intention", blaming a poorly drafted paper on the social fund, which a minister signed, for the confusion.
The government said the loans, run by credit unions, would be "affordable". But Defence Secretary John Hutton said using credit unions was "a good idea".
The social fund currently extends £500m a year in interest-free loans to some 1.2 million benefit claimants, many of them elderly or disabled. The row concerns a Department for Work and Pensions consultation document which proposes changes to the social fund.
The BBC's political correspondent Jo Coburn said the reforms were meant to ensure that interest-free loans were not offered to people who did not really need them. It currently extends £500m a year in interest-free loans to some 1.2 million benefit claimants, many of them elderly or disabled.
'No justice' The document, signed by Work and Pensions Secretary James Purnell, stated that the government was considering offering contracts to credit unions "to take over the provision of credit to social fund customers in their areas".
Details of the proposed changes were released in a Department for Work and Pensions consultation document, which suggests offering contracts to credit unions to provide "affordable loans", as well as other services such as savings accounts and financial advice. As well as providing "affordable loans", they could also offer other services such as savings accounts and financial advice, it said.
"To fund the cost of these extra services, we are proposing that the credit offered under these arrangements could attract an interest charge of 1-2% per month," it says. "To fund the cost of these extra services, we are proposing that the credit offered under these arrangements could attract an interest charge of 1-2% per month - the same criterion which applies to credit unions." The idea of trying to involve credit unions in this way is quite a good idea John Hutton, Defence Secretary
The paper states that credit unions of the sort they are considering "typically charge interest at rates varying from 12.68% to 26.8% APR". This is astonishing. It is outrageous William Hague, Conservatives The paper stated that credit unions "typically charge interest at rates varying from 12.68% to 26.8% APR".
'Ridiculous'
Shadow foreign secretary William Hague told the BBC the proposal was "right out of order".
"This is astonishing. It is outrageous," he said.
"Here we have a proposal under Gordon Brown's government for interest rates up to 27% - the interest rates of the worst store cards or the loan sharks - to be imposed on some of the poorest people in the country."
Defence Secretary John Hutton said it was "ridiculous" to suggest ministers were acting like "loan sharks".
He told Sky News the government was trying to see if there was "a role for credit unions who are not loan sharks".
"The idea of trying to involve the credit unions in this way is a quite a good idea," he said. "The government has no desire to punish people who need these loans."
Since the row broke out on Sunday, the government has tried to distance itself from the DWP document and said that poor drafting had given a false impression people could be charged interest on social fund loans.
Sources have told the BBC: "It will not happen and it was never our intention."HAVE YOUR SAY The people who need it the most will suffer while those who milk the system will not notice a thing Steve Godrich, Reading Send us your comments
A DWP spokesman said the intention was to consult over widening access to credit unions to people on benefits and those in work to provide advice on debt.
Work and Pensions Minister Kitty Ussher said: "We are not proposing to charge interest on the government loans."
'A joke'
Speaking on the BBC's Andrew Marr Show, Lord Kinnock said there was "no justice" in the plan.Speaking on the BBC's Andrew Marr Show, Lord Kinnock said there was "no justice" in the plan.
"I don't know where the idea of imposing any form of interest on repayments of social fund loans comes from, but I know where it's going to, and that is absolutely nowhere," he said."I don't know where the idea of imposing any form of interest on repayments of social fund loans comes from, but I know where it's going to, and that is absolutely nowhere," he said.
Chairman of the Treasury Select Committee Mr McFall said he found the idea laughable.Chairman of the Treasury Select Committee Mr McFall said he found the idea laughable.
"The government needs to... ensure that people get the genuine loans and genuine needs met," he said."The government needs to... ensure that people get the genuine loans and genuine needs met," he said.
"To put a 26.9% interest rate on that seems to me that it would make a bad situation even worse, so I think that's a bit of a joke.""To put a 26.9% interest rate on that seems to me that it would make a bad situation even worse, so I think that's a bit of a joke."
The Conservatives accused Gordon Brown and Work and Pensions Secretary James Purnell of acting like "loan sharks". The Liberal Democrats also joined in criticism of the proposed reform, saying it was "totally unacceptable" and "seemed to be destroying the purpose" of the social fund.
Shadow foreign secretary William Hague told the BBC: "This is astonishing. It is outrageous.
"Here we have a proposal under Gordon Brown's government for interest rates up to 27% - the interest rates of the worst store cards or the loan sharks - to be imposed on some of the poorest people in the country.
"That should be right out of order."
'Insensitive'
The Liberal Democrats also joined in the criticism, saying the proposed reform was "totally unacceptable" and "seemed to be destroying the purpose" of the social fund.HAVE YOUR SAY The people who need it the most will suffer while those who milk the system will not notice a thing Steve Godrich, Reading Send us your comments
Treasury spokesman Vince Cable told the BBC: "It's completely self defeating. It's just driving people who are already in difficulty into even further difficulty.Treasury spokesman Vince Cable told the BBC: "It's completely self defeating. It's just driving people who are already in difficulty into even further difficulty.
"It's harsh, it's insensitive and it doesn't reflect the needs of the day.""It's harsh, it's insensitive and it doesn't reflect the needs of the day."
The DWP said that in 2007/8 the average "budgeting loan" given by the social fund was £433.30, and the average repayment was £10.54 a week.
In future, if interest were charged at 2% a month, it would take 46 weeks to repay that amount instead of 42, with total interest of £47.80.
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 want to make sure people in need do not turn to illegal loan sharks who can charge interest of 1,000%."
No decisions had been made and the government would do nothing to create difficulties for low-income families, she added.
Have you used the emergency loan fund? Are you considering using the facility?Have you used the emergency loan fund? Are you considering using the facility?
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