The Government has insisted it has no plans to charge interest on crisis loans to the country’s poorest households, after the idea sparked fury across the political spectrum.
The proposal to charge up to 2% a month — the equivalent of almost 27% annually — for loans available to people on benefits under the Government’s social fund was included in a consultation paper issued last month under the signature of Work and Pensions Secretary James Purnell.
Conservatives accused the Government of acting like loan sharks, while Labour MPs, unions and charities expressed dismay. Labour’s former leader Lord Kinnock said there was “no justice” in the proposal.
Work and Pensions Minister Kitty Ussher hastily announced that ministers had ruled out the change, even though the consultation does not officially end until Tuesday.
She insisted the Government’s aim was to make emergency credit more easily available to vulnerable households, in order to avoid them turning to loan sharks charging as much as 1,000% in interest.
Ms Ussher said the Government wanted to enter into partnerships with local credit unions, which offer loans at interest capped at 2% a month. But she insisted that any state loans provided through them would be interest-free.
She said she would like to see rules governing the loans relaxed, so that applicants could borrow state money to buy their children Christmas presents, as well as for urgent and essential expenses.
The social fund pays out around £500m a year to low-income households.