Charities attack new limits on emergency welfare loans

Crisis loans for the poor, small cash awards that tide over people in dire need, are to be cut, in a move criticised by charities, with one describing it as "cutting holes in the final layer of the safety net for families".

Averaging £100, the loans are meant to help the poorest people on benefits through difficult times. From April, the Department for Work and Pensions will limit the number of crisis loans in a year to three and no longer provide cash for items such as cookers and beds. It will cut the amount of money available to claimants from 75% to 60% of the total benefits they can be paid.

Ministers say the system has become unaffordable and claim the loans are not being used by people to lift themselves out of trouble. Instead, people keep coming back for more cash. In the past year, 2.7m crisis loans were given, with more than 17,000 people receiving 10 or more such loans. The daily bill to the taxpayer for emergency credit is £1m.

Borrowers are expected to repay the loan only after their crisis is over, with the money being deducted from their weekly benefits at either 12%, 10% or 5% interest over two years.

Steve Webb, the minister for pensions, 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. That's why we've taken urgent action to protect the budget."

Charities said the government was attempting to cast the loans as "sticking plaster" rather than "a vital part of the welfare state" in an attempt to cut costs. The result, say campaigners, will be misery for poor families.

Alison Garnham, chief executive of the Child Poverty Action Group, said she was shocked that ministers would "cut holes in the final layer of the safety net for families hit by a crisis".

She said: "Most worrying of all is the lack of any mention in the minister's statement of how the wellbeing of children will be protected when families are left in utter destitution by the removal of their right to a crisis loan."

Garnham said people often needed the loans because of delays in benefit payments. "Ministers have to accept more responsibility for the rise in crisis loan applications. It is under their instructions that people are told to apply for a crisis loan when delays happen to benefit claims," she said.

Many charities had feared cuts to cash loans would be made after ministerial sources briefed the tabloid press that the system was being abused by people using the money to pay for nights out. There were also claims that the money was never repaid.

Helen Dent, chief executive of Family Action, said: "Cracking down on crisis loans is another nail in the coffin of the welfare safety net for families in crisis. We know from our welfare grants scheme that cookers and beds are vital for women fleeing domestic violence or patients waiting in a hospital bed so that they can move to safe independent living."