Augment Scotland - Mental health charity

CRISIS LOAN CHANGES

APRIL 2011

Q&A FOR EXTERNAL RELATIONS TEAMS

What is a Crisis Loan?

A Crisis Loan is an interest free loan to help meet an immediate short-term need in an emergency or as a consequence of disaster.

Examples of this are:

a disaster causing damage, loss or destruction to possessions or property
loss of money, for example because of robbery or burglary
waiting for first payment of benefit or wages when there is no money to live on
emergency travel expenses for someone stranded away from home.

The decision maker determines the amount of the Crisis Loan based on an individual applicant’s circumstances. There is an overall maximum payable, currently £1500. This remains the total maximum even if several applications are made and loans awarded.

Anyone over the age of 16 can apply for a Crisis Loan even if they are not on benefit. We aim to recover the Loan within two years at a rate the customer can afford.

What changes are being made to Crisis Loans?

The three planned changes to the Crisis Loan system which take effect on 4 April 2011 are:

We will no longer pay Crisis Loans for Items, e.g. cookers, beds etc. Rent In Advance, charges for board and lodging accommodation and residential charges for hostels are the only exceptions to this. There will be continuing support from the Community Care Grant scheme for those customers who meet the qualifying conditions. Those not eligible for a Community Care Grant will be considered for a Crisis Loan if there has been a disaster impacting themselves or their household, such as flooding.
We will reduce the daily 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 restrict Crisis Loan awards for living expenses in a rolling twelve month period to a maximum of three. This policy was tested by Jobcentre Plus in 2009-10.

Why are you making these changes?

Since 2006 the number of Crisis Loan awards has tripled. We do not believe that this increase reflects an underlying increase in genuine need.

Whilst the Government is committed to maintaining core funding for the discretionary Social Fund at current levels over the spending review period to meet genuine need we cannot justify or afford continually spending more on Crisis Loans.

These changes to the Crisis Loan scheme from April will manage demand back towards pre-2006 levels. This will ensure funding for Community Care Grants is protected and that we are able to pay Budgeting Loans throughout the year. Without these measures Budgeting Loans would need to be withdrawn before Christmas. This would leave significant numbers of people on low incomes with little alternative but to turn to high cost or illegal lending.

A Budgeting Loan is also an interest free loan and intended to help spread the cost of certain one-off expenses, such as furniture or household items, clothing or costs in looking for or starting work, over a longer period of time. Only income-related benefit recipients in receipt of benefit for 26 weeks or more can be awarded a Budgeting Loan.

Won’t some of the poorest people in society suffer hardship as a result of these changes? How can that be fair?

Challenging public finances means tough choices are needed to ensure the support available from grants and loans goes to those who need it most.

The Crisis Loan system is open to abuse and the large increase in demand over last few years does not reflect underlying need and shows little sign of reducing.

We need to ensure that the Social Fund is modernised and put on a sustainable footing so it continues to provide support for vulnerable people but removing abuse that exists in the system. That is what these changes are designed to do.

What other options will people have when they are denied a Crisis Loan?

Customers may be eligible for a Community Care Grant or Budgeting Loan. For those who are not, Jobcentre Plus staff are aware of additional support and help that can be provided locally to those customers who are unsuccessful in their application to the Social Fund and will advise people accordingly.

How many people apply for Crisis Loans and what is the average amount paid out to an individual?

In 2009/10 there were approximately 3.6 million applications to Social Fund Crisis Loans with an average award of £82.

How many of them will be affected by these changes?

The vast majority of applications for crisis loans are for short term living expenses – these applications will still be accepted under the new rules.

What effect on customers will paying Crisis Loans for Living Expenses awards at a maximum of 60% rather than the current 75% of benefit have?

We will reduce the daily 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 which is fair.

Refusing to give Crisis Loans for items suggests you don’t feel people have a basic right to a bed to sleep on or facilities to prepare hot food. How can that be fair?

The most vulnerable customers, those on income-related benefits, may have access to such items through Community Care Grants and Budgeting Loans provided they meet the eligibility criteria.

Are you saying that many Crisis Loan applicants are `playing the system’ and claiming money dishonestly? What evidence do you have for that?

We have evidence indicating that not all Crisis Loans are actually needed. Since the introduction of a face to face interview at the 3^rd application for a Crisis Loan for Living Expenses in a year more than 1 in 3 customers who report a crisis do not attend the interview. This interview is an opportunity for Jobcentre Plus to fully explore the customer’s crisis and their non-attendance indicates that the crisis has been resolved without recourse to the Social Fund or that it was not as severe as originally reported.

What are you doing to explain the changes to customers?

We are briefing our own staff so that they can explain the new Crisis Loan eligibility rules to people when they apply for a loan. We will also be updating the DWP intranet site with information for external advice agencies who may get queries from people looking for financial help.

Will you monitor the effect of these changes?

As 2011/12 unfolds we will be reviewing the impact of these changes and considering any other such measures that might need to be introduced in the lead up to any implementation of wider Social Fund changes to be addressed in the forthcoming Welfare Reform Bill.

Volumes of applications and awards will be published at the year end in the Social Fund Annual Report.

Do you have any other plans for changing the Social Fund?

Yes, we set out longer term reform plans in a White Paper (Universal Credit: welfare that works) last November. Details are included in the Welfare Reform laid in Parliament on 17 February 2011.

The White Paper set out plans for replacing Community Care Grants and Crisis Loans for general living expenses with provision from local authorities in England and the Devolved Administrations in Scotland and Wales - tailored to local circumstance with more robust checks and balances and integrated with other local support services.

Budgeting loans and crisis loan alignment payments will be replaced by payments on account, available nationally, and integrated into the benefits system.