Don't cut emergency loans, says charity

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62% of local authorities have stopped providing interest free loans since the Social Fund was cut in April.

They've been replaced by grants, vouchers and 'in kind' schemes.

But all three are inadequate and risk pushing vulnerable households into taking out high cost or illegal loans, according to The Children's Society, which authored this week's report.

"Families are at risk of becoming the casualties of government changes to the Social Fund," Matthew Reed, the charity's Chief Executive said.

"By denying help to those most in need, many more families will become trapped in a vicious spiral of debt and despair."

Cutting up the safety net

The social fund, which met its end in the 2012 Welfare Reform Act, used to offer two kinds of emergency loans.

Crisis loans were very small £50 loans for emergencies; community grants were larger loans, up to £1,000, for essentials like furniture.

These two schemes were replaced in April by 150 local schemes.

These local schemes usually offer households in crisis vouchers for essential shopping or 'in kind' support like food, clothing and second hand furniture, rather than cash.

At the same time, funding was cut: there's £150 million less available for assistance than there was in 2010.

As The Children's Society note, although charitable support might be very welcome, among other problems it may cost more to hand out, since, unlike a loan, the support cannot be paid back.

In England, 62% of councils now won't provide interest free cash loans at all.

Good times for high cost lenders?

All in all, the charity's report notes, this environment is likely to drive some households to high cost legal - 'payday' - lenders and illegal lenders.

By failing to offer cash assistance and/or only offering assistance after an application process of over 24 hours, councils are effectively giving lenders, and particularly payday lenders the edge.

Some schemes even specially ask that claimants be completely financially excluded before they can access support.

Cash is king: In kind support is all very well but crisis loans are intended to catch those right on the financial edge and, often, only cash will do.

Emergency loans are used for food but they may also be needed to keep the heating and electricity on, pay for essential travel or allow an individual or family close to homelessness to put down a deposit for a new flat.

In those situations, lenders might be the only option.

Bad timing: 18% of the 70 local councils surveyed by Children's Society distribute emergency loans within two hours of application.

44% aimed, and almost always succeeded, in getting money to claimants within 24 hours or on the same day they apply.

However, the rest took longer than that.

When payday lenders aim to get money into their applicants' accounts more or less instantly, it puts the councils at severe disadvantage among those in need.

Financially excluded only: Crisis loans have always been tied to the benefits system - most loans were repaid over time in withheld benefits, for example - but many local schemes now ask that applicants be completely financially excluded to benefit.

In several local welfare assistance schemes households are only eligible for support if they can show that they cannot access consumer credit.

Many specify that applicants must not have loan lending or even family support available before they can benefit.