CONCLUSIONS

The budgeting loan scheme is not only the operational heart and soul of the Social Fund (Craig, 2001); it is also an important and highly valued component of the financial support provided to low-income families in receipt of qualifying benefits (Kempson, 2001), particularly Income Support. Currently, over a third of families on Income Support receive a Social Fund (budgeting or crisis) loan each year. In total, two-fifths of families on Income Support at any time are repaying a loan by deduction from their benefit. The net cost of the budgeting loan scheme, once loan recoveries are taken into account, is very low: only £3.6 million in 2002/03. The cost of

administering the scheme, however, is quite high.

Chapter 3 examined the extent to which recipients of qualifying benefits make use of Social Fund loans. It is clear, both from the administrative statistics on loan awards and the secondary analysis of the Family Resources Survey, that families with

children make much greater use of Social Fund loans than couples and single people without dependent children. People who are sick and disabled but below

pensionable age are also over-represented among loan recipients. However,

pensioners and people of Asian or Asian British ethnic background are considerably under-represented users of Social Fund loans.

The heavy reliance of families with children on Social Fund loans means that the scheme is very important to the Government’s strategy for tackling child poverty. Consequently, whether or not the scheme is helping the families in most need is an important question, as is the impact of loan repayment on hardship. The analysis presented in Chapter 4 of the report demonstrated that there are significant

differences between those who use the Social Fund to borrow money and those who do not. In general, Social Fund customers were more financially disadvantaged than other income support recipients. They were more likely to run out of money most weeks, to have debts, and to have trouble repaying debts and managing their finances than non-customers. They were less likely to have current or savings accounts and less likely to have savings. Families that made repeated use of the Social Fund during 2000 to 2002 were in some respects more financially

disadvantaged than those that applied for a loan only once.

Thus, the evidence from this research indicates that the Social Fund is in general helping families that are in most need. This contrasts with the findings of the study by Huby and Dix (1992), which found no discernible differences between those who used the fund and those who did not. That research was conducted not long after the introduction of the Social Fund (and included grants as well as loans) and well before the 1999 changes to the budgeting loan scheme. Although the present study is not directly comparable with Huby and Dix (1992), it nonetheless does seem that, in practice, budgeting loans are now more targeted than they were when the scheme

was introduced. That said, some non-customers were financially disadvantaged and it remains unclear why they have not applied for a loan while others in broadly similar circumstances have done so.

Chapter 5 of the report investigated the events that were associated statistically with applications for a Social Fund loan. It was found that the triggers that were

statistically associated with loan applications by families with children related to key events in children’s lives, such as reaching school age. This is not surprising in that, for families, these events often do generate the need to make one-off purchases such as cots and school uniforms. These events seem to have been more likely to trigger applications for loans by lone parents than couples with children and by families without savings than those that do have money saved up. In other words, couple parents and families with savings on income support are to some extent protected from the negative affects of certain events.

The baby component of the Child Tax Credit is an explicit recognition of the extra costs that families face in the first year of a baby’s life. However, the research reported here indicates that extra costs do not end after 12 months, but rather that there are other child life-stage events that generate the need to make one-off or other purchases that are very difficult to afford out of the weekly benefit. Parents have to make relatively costly purchases when their children become toddlers and reach school age.

For those who apply and are successful, the budgeting loan scheme enables families to purchase the items that they could not otherwise afford to buy out of their benefit income. The alternatives are to go without - that is, to experience material

deprivation - or to find other ways of getting the item. The latter, whether it is buying out of a catalogue or borrowing the money from commercial lenders, is invariably a much more expensive option than the Social Fund and can result in greater financial hardship.

However it is borrowed, the money has to be repaid. Chapter 6 reported on exploratory analysis that aimed to identify the impact of Social Fund loans on hardship and material deprivation: in short, were those who borrowed money from the fund better off or worse off in terms of hardship and material deprivation? The results indicated that, more often than not, there was a significant relationship

between receipt of a Social Fund loan and change in material deprivation. However, the direction of this change was not decisively one way or another – in some cases it had a negative effect and in others a positive effect in terms of hardship and

deprivation. But in terms of overall hardship, there is some indication that repaying a Social Fund loan makes families worse off. Repaying a loan was not significantly associated with a change in overall hardship. But if change was experienced, repaying a loan was more likely to have a negative effect – and push families into greater overall hardship.

It was not possible to ascertain from this research why hardship and material

deprivation got worse for some families but better for others in the year following their loan. It may have been due to factors other than receipt of a loan and the repayment of it, but that is beyond the scope of this research. Further quantitative or qualitative research would be necessary to provide more definitive answers to this question. What is clear, though, is that many families in receipt of Social Fund loans are struggling to get by on their benefit, that the Social Fund is a much cheaper way to borrow money than other sources of loan finance, and that those who receive

budgeting loans are generally more financially disadvantaged off than those who do not.