Crisis Loans were set up to meet immediate short-term needs in an emergency. Yet in the last seven years there have been over seven million claims from 400,000 regular users applying for 10 or more crisis loans. Since telephone claims were introduced in 2006 daily spend on the loans has tripled to £1million a day.
From April, the Department for Work and Pensions will no longer pay Crisis Loans for items such as cookers and beds, will limit the amount paid for living expenses and will set a cap of three Crisis Loans for general living expenses in a rolling year.
Minister for Pensions, Steve Webb said:
"It is clear that the system is acting as a sticking plaster that isn’t addressing the real problems that people are facing. We need to ensure that crisis loan support is correctly targeted at those who need it most and ensure we can still afford to pay Budgeting Loans. That’s why we’ve taken urgent action today to protect the budget.
"We don’t want to leave people on low incomes without the safety net of interest-free Budgeting Loans and then turning to loan sharks for help."
Budgeting Loans are intended to help long-term income-related benefit recipients cope with the cost of essential items like furniture and household equipment. If spending continued, money for them would run out by Christmas.
The planned changes to the Crisis Loan system from April 2011 are:
No longer paying Crisis Loans for items such as cookers and beds. There will be some residual support for people following a disaster such as flooding.
We will reduce the rate paid for living expenses from 75 per cent down to 60 per cent of benefit rate. This will align with the position for Jobseekers Allowance cases paid at the hardship rate.
We will implement a cap of three Crisis Loan awards for general living expenses in a rolling twelve month period. This policy was tested by Jobcentre Plus in 2009-10.
Social Fund: the current scheme
The Social Fund currently consists of a discretionary and a regulated scheme.
Discretionary Scheme: Community Care Grants, Budgeting Loans and Crisis Loans.
Regulated Scheme: Cold Weather Payments, Funeral Payments, Sure Start Maternity Grants and Winter Fuel Payments.
Social Fund: reform
We have already announced as part of wider welfare reform that the discretionary elements will be reformed from 2013.
The Welfare Reform White Paper announced that local authorities in England will deliver reformed support to replace Community Care Grants and Crisis Loans for general living expense.
Crisis Loan alignment payments, interim payments of benefit and Budgeting Loans will be replaced by a system of payments on account integrated into benefits.
Replacing Community Care Grants and Crisis Loans with provision tailored to local services and integrated with wider support will ensure support properly targeted at those in the greatest need.
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