Monday, 12 November 2012

The Loan Shark's Charter

In July of this year, then junior business minister Norman Lamb unveiled a new Code of Practice aimed at protecting people from getting trapped in cycles of unceasing debt. Targeting payday loan companies (legal loan sharks to you and I), he said, "payday loans should only ever be used as a short-term financial fix, not as a long-term solution to financial difficulties. I would urge people to think carefully before taking out a short term loan and to consider affordable alternatives such as their local Credit Union."

All very sensible. All very agreeable.

But there's a problem. In the 2013/14 financial year, the government will effectively be giving £3bn to the richest people in society. Far from those with the widest shoulders bearing the biggest burden, the government will lighten the load by handing every single millionaire in the land at least £40,000.

As the right are so fond of telling us, there's no such thing as a free lunch. The aperitif the Tories will be serving their rich friends (and, in a number of cases, themselves), is to be funded by taking £3.1bn from low paid workers, children, and disabled people. It just goes to show the Tories aren't against wealth redistribution in principle; they only have a problem with it when it goes from the better off to the most needy.

One aspect of their drive to punish the poor for being poor that hasn't attracted a great deal of attention are their plans to localise the 'Social Fund'. For those not familiar with it, the fund is a pot of money to help the very poorest meet one-off expenses. It covers cold weather payments, maternity grants, funeral grants, furnishings, community care grants, budgeting loans, and crisis loans.

The two kinds of loans available are an example of the social solidarity a society needs to function. Both are determined by the needs of the applicants, and repayment schedules are drawn up individually in relation to their circumstances. In the course of my work, I've encountered low waged workers and benefit recipients who, thanks to a crisis loan, were able to keep the wolf from their doors. It has acted as the kind of safety net even Tories sometimes acknowledge is necessary.

As of next April the government are abolishing crisis loans.

In their drive to localise some benefits (Council Tax and Housing Benefit being the most visible examples), the Social Fund is also going to be handed over to local authorities. With a hefty cut.

In 2010/11, the Social Fund budget was £287m. In 2011/12, they aimed to slash that sum by 36% and after that administer year-on-year reductions of between 2.3% and 2.7%. By 2015, the government hopes to have withheld some £443m from Britain's most impoverished people.

Along with the cut, the Social Fund will be de-ringfenced. There will be nothing stopping councils in wealthier areas junking the scheme altogether and diverting the money to Council Tax cuts for top rate payers. The meagre funds might also be raided by councils who are harder up and struggling to balance the budgets.

But worst of all, not only will the attack on the Social Fund cause anxiety and misery for those at society's sharp end, it could drive tens of thousands into the arms of illegal, high-cost moneylenders. In short, the abolition of the crisis loan and cuts to the fund (on top of the bedroom tax, cuts to benefits, and smaller tax credits) is nothing more than a loan shark's charter.

With such policies in the pipeline, it makes you wonder why this LibDem-supported Tory government took the trouble to try and portray itself on the side of "vulnerable borrowers".


Robert said...

Well we in my area and the CAB approached labour god know how many times as we saw more and more people getting trapped, what did labour come back with, it's an area we think is needed.

In other words the poorest need money, then loans sharks are ok

Phil said...

Sadly, I cannot forsee Labour making any positive reforms to benefits if we form the government in 2015.

BUT the idea around the 'predistribution' agenda is to make people less dependent on benefits by making work pay, depressing energy bills, and so on. I would like to see an incoming Labour government introduce a raft of measures to support cooperatives and, particularly, credit unions.