3. Reforming the loans scheme

3.1 This chapter outlines a number of high-level proposals for reforming the loans scheme of the Social Fund. We believe that some aspects of Social Fund operation – set out at Figure 1 – are working well and that we should build on them. But there are questions asked of the model and we believe that by asking in the first instance what role we expect the Social Fund to play in the benefits system, we can make reforms which will make a real difference to those who are genuinely struggling to make ends meet.

Figure 1: the existing discretionary Social Fund scheme

Proposals for early changes

3.2 In order to further address issues of complexity and uncertainty, we propose to move towards a simpler loans structure with transparency around eligibility criteria and much more targeted discretion.

3.3 By doing this we believe that we could improve our customers’ experience of the Social Fund:

• through a simpler and more efficient application process, that reduces confusion for the customer by creating a single point of entry to the loans scheme; and
• building in a more tailored and personalised system that promotes financial capability and provides more support to those most in need of help and guidance.

3.4 By modernising the loans scheme, building in differing support and interaction based on the level of need that our customers have, we would be able to target support more accurately on those that needed it most by introducing the concept of progressive support and intervention.

3.5 We would do this with the clear recognition that not all our customers suffer from poor budgeting skills. Many people who make use of Social Fund loans and grants are highly skilled budgeters – their use of the limited resources available to them emphasises this^[17]. However, we would like to ensure that our customers are made aware of the opportunities available to them.

3.6 We propose a number of early changes to the loans scheme. For those that need little help budgeting on a low income, the emphasis would be on a light-touch, simple and clear Budgeting Loans scheme with more clarity on what people can borrow with loans available up to an agreed limit. This would include signposting to the Money Guidance service to ensure that customers are aware of the support available on budgeting and to help them manage their financial affairs better. Our intention is to make early changes to this scheme and allow access for applications from Day One of benefit entitlement. This would be where the vast majority of loan applicants will be served by the Social Fund and they would not need to make applications to other elements of the scheme. This will avoid the current confusion where some people may, for example, apply for a Crisis Loan where a Budgeting Loan might be more appropriate for them. As discussed in paragraph 2.7, the maximum amount a successful applicant can be awarded in their first six months of a benefit claim will be lower than the amount currently awarded for Budgeting Loans.

3.7 Not only would this mean a simpler, more straightforward application process for customers, but it would also reduce administrative costs for Jobcentre Plus due to easier and quicker processing of claims for the majority of applications.

3.8 We know that there will always be people who need a greater level of support, either because they have difficulty managing their finances, or because their complex lives mean that they are more likely to experience a danger to their health or safety.

3.9 Reflecting the fact that some customers will demonstrate that they have difficulty budgeting and their circumstances represent a serious risk to their health or safety, it could be at this stage that we would start to have a much higher level of involvement with the customer. For those making multiple Crisis Loan applications, we propose making it a requirement that they attend an interview on a second application and more stringent checks on what they need the money for – this will allow us to offer a much more supportive process and a more holistic assessment, looking not just at the customer’s short-term needs, but also at the deeper causes of their financial management difficulties and taking a longer-term view.

Longer-term proposals

3.10 In the medium to long term, we would also like to consider other changes which will reduce complexity and increase the levels of support available to address customers’ longer-term needs. By doing this we aim to support more customers into greater financial inclusion, improve their financial capability and reduce dependency on the Social Fund, thus delivering better value for money to the taxpayer.

3.11 We want to bring about much more straightforward access to one-off or occasional loans to deal with customers’ immediate problems, via a streamlined application process, allowing for greater certainty of outcome.

3.12 Additionally, we would like to hear views on the range of additional support available to those with more deep-seated financial problems, and a set of requirements for customers who benefit from the improved support we are proposing.

3.13 One such proposal is a requirement for an applicant, at a suitable stage, to benefit from a full financial health check. This could include a check to see if they are receiving the appropriate benefits, are able to access the right financial support, are getting additional help to move into work and resolve housing problems, and so on.

3.14 Another is to look at the option of requiring those who need frequent help to draw up plans with advisers, similar to the arrangements that are now required of jobseekers.

3.15 Whilst we need to consider at what stage this kind of intervention would be most effective, we would also like to hear views on which organisations would be best placed to provide this more personalised interaction and wider support – be it Jobcentre Plus, local authorities, third sector organisations or possibly a combination of providers. We want to see how we can harness the expertise and local knowledge of other agencies and organisations to ensure the best possible service to customers who need the most support.

3.16 We believe that aligning the Social Fund with the rights and responsibilities and the financial inclusion agendas will provide and highlight opportunities available to customers, and requiring them to engage as a condition of receiving their award will support them towards greater financial inclusion.

3.17 This may involve signposting and referral to other available help. There is already a range of services provided by Government and other organisations which could provide support to Social Fund customers. We believe that these measures could effectively be used as support services that customers would have to actively engage with, as a requirement for receiving a loan. All provision mentioned here is impartial and free of charge to the customer.

• The NHS Stressline was introduced in December 2009 and provides a single source of advice and information for people dealing with distress as a result of financial pressure;
• FSA/HMT Money Guidance: see Box 1 above;
• Community Legal Advice is a free and confidential advice service paid for by legal aid. The helpline provides specialist independent advice about debt, education, benefits, tax credits, employment and housing problems to people who live on a low income or benefits.
• Saving Gateway: the Saving Gateway is a new form of savings account for working-age people on lower incomes, which will be introduced nationally later in 2010. It provides a strong personal incentive for the customer group to save. Customers will be able to save up to £25 per month for up to two years. At the end of this period the Government will add 50p for every pound saved, up to a maximum of £600 of savings attracting a £300 Government contribution.

3.18 These and other initiatives could be of use to customers who use the Social Fund at different points in their journey. Some may help with the decision of whether to take on any liability and its implications, others may help with issues concerning existing debt, including illegal money lending, or other situations which individuals may be finding it difficult to deal with, for example County Court Judgements.

3.19 We would like to hear your views on alternative options for the delivery and administration of a reformed loans scheme.

3.20 We could consider developing a single gateway for all applications. This would make it easier for the customer to navigate the application process and they would no longer be required to make a decision about which aspect of the scheme they should apply to. Instead they would only need to make one application and then an adviser would consider their individual needs, taking account of their Social Fund history and any extra support that was required, and decide upon the most appropriate form of assistance. Whatever delivery system is introduced its cost, as a proportion of the value of loans given, should be reduced to provide value for money for the taxpayer.

3.21 We also want to look again at whether customers should be seen face-to face and when we could use a more automated service. Increased automation could make the scheme much more efficient. This would allow us to provide extra support to those who most need assistance.

3.22 To make a single gateway as effective as possible, a clear set of eligibility criteria to help customers decide whether to apply or not would be needed. We would like to explore changing eligibility so that customers on qualifying benefits can access loans from the start of their benefit entitlement.

Questions

What types of support and requirements would be most useful for customers?

When do you feel it is most effective to intervene in a customers’ interaction with the Social Fund, for example following a second loan application?

How best can we identify the support needs of our customers in a more automated system?

Who do you think would be best placed to carry out these interventions?

Do you think a single gateway to deliver the loans scheme is a good idea?

Improving debt recovery

3.23 In their 2005 report on the Social Fund, the National Audit Office recommended that the Department for Work and Pensions “should give greater attention to recovering Social Fund debt to counter the trend for debt balances becoming older (and increasingly hard to collect)”^[18]. In support of this recommendation, we are managing recovery of outstanding debts on loans from those people who are no longer receiving benefits from which the Department can automatically recover. In 2008-09, £22.8 million was recovered from Crisis and Budgeting Loan recipients who had moved off benefits. This represented an increase from the £15.1 million recovered in the previous year. The vast majority of loans expenditure is recovered within five years.

3.24 However, we want to go further than this to enable more efficient use of the budget. Aligned to our vision of a modernised loans scheme is a commitment to improving the recovery of outstanding debts to the Social Fund. This will increase the amount of money that is available for lending to customers – making the money we have available to us work harder. In addition to administrative improvements in how we manage debt internally, we are keen to explore options to improve debt recovery on loans when people have started earning again.

Informed choice and continued information

3.25 We would like to provide customers with more information at the beginning of an application, for example with an online calculator and access to information on their current liabilities. We believe this would enable customers to make a more informed choice about their options, for example whether taking a loan would be the most appropriate course of action.

3.26 Continued information could also be offered during the repayment of the loan – again with access to the status of the loan through permanent access online, via text message or letters.