Abolishing the social fund: when ‘local’ simply means ‘less’

What does the abolition of the social fund mean for local areas? Damon Gibbons finds out.

On 1st April the discretionary social fund, which provides support in the form of community care grants and crisis loans for some of our most vulnerable households, will be abolished and a £178m budget transferred from the Department for Work and Pensions (DWP) to local areas to support the provision of new ‘local welfare schemes’.

In Scotland and Wales new national schemes will be put in place, but in England the budget is being allocated to upper tier local authorities. DWP has not placed these under any statutory duty to provide local support and the budget is not ring-fenced, providing local authorities with considerable freedom as to its use. However, ministers have indicated that they ‘expect the funding to be concentrated on those facing greatest difficulty in managing their income’ and used to provide a ‘flexible response to unavoidable need, perhaps through a mix of cash or goods and aligning with the wider range of local support local authorities already offer.’

Over the course of the past year we have been tracking the development of these new local schemes: assessing the likely impact of the changes on the living standards of low income households, and examining the potential for credit unions and Community Development Finance Initiatives (CDFIs) to be involved in the new landscape of localised support.

The project has employed a wide variety of methods. These have included an analysis of social fund expenditure since 2010; the mapping of spend on community care grants and crisis loans at the local authority level; online surveys and follow-up interviews with local authorities, credit unions and CDFIs, and a desk based review of 25 local authority proposals contained in cabinet and committee papers. To help assess the likely impact of the changes on low income households we have also reviewed existing research findings and conducted new qualitative interviews with social fund customers.

A ‘POSTCODE LOTTERY’ OF SUPPORT
Our findings from this work are a cause for alarm. Although the current system is far from perfect, this has provided an important safety net for many low income households – enabling them to furnish homes to an acceptable standard and providing assistance when people may otherwise have had to go without food, heating or other essentials due to a lack of cash.

This support has already been considerably reduced in recent years. Expenditure on community care grants and crisis loans¹ was cut by over a quarter (26.7%) in the year from 2010/11 through to 2011/12. In the same period, the largest provider of food parcels in the UK, the Trussell Trust, reported the number of people using its food banks more than doubled from 61,000 to 128,000.

It is therefore of great concern that the programme budget being devolved to support the creation of local welfare schemes will be further reduced by some 17.3% as compared to the level of spend in 2011/12. Further to this, it is also clear that the way in which the budget is being allocated will reflect existing inequalities in access to the fund at the local level rather than be based on a genuine assessment of levels of need for support in different localities.

Nevertheless, and despite the absence of any statutory duties being placed on local authorities, we find that these are intending to use the devolved budgets to provide new local welfare schemes. Although comprehensive information concerning the approaches being taken is not available, we have not heard any reports of local authorities refusing to develop welfare schemes throughout the course of this project.

While local schemes are being put in place it is also clear that these will vary considerably – resulting in a ‘postcode lottery’ of support in England. Given the significant reduction in budgets, the overall economic context, and the impact of other welfare reforms, local authorities have, rightly, been looking at ways to manage likely demand. However, it is now clear that the main mechanisms to achieve this will be the imposition of tighter eligibility requirements and a move away from the provision of cash and towards in-kind support and voucher schemes in most areas.

A MISSED OPPORTUNITY FOR THIRD SECTOR FINANCE
The development of local welfare schemes also represents a missed opportunity for most third sector financial services providers. Although the capacity of providers in each local area varies, it is clear that credit unions and CDFIs could play a more significant role in respect of payment processing; providing local loans schemes; and providing help with money management and debt problems to address underlying needs. The failure to engage these providers and, in particular, to put in place loan schemes, will significantly impact on the overall level of support in many areas – as over half of current crisis loan provision is funded through the repayment of loans.

This is likely to force many people to turn to high cost commercial lenders. Earlier research indicates that up to 20% of people refused or given only partial help from the social fund resorted to lenders charging more than £70 in interest for every £100 borrowed. The impact on living standards is clear, with credit repayments forcing reductions in spending on food and heating.

Even in those areas where loan schemes are being put in place, there is considerable variation in approach with some local authorities electing to fully underwrite loans and proposing to cover the administrative costs for credit unions and CDFIs. In these areas interest free crisis loans will continue to be made – with repayments recycled into future provision. However, in other areas local authorities and third sector lenders are building their models on the basis that providers will need to charge interest and fees, albeit at much more affordable rates than commercial lenders. More work will need to be done to share learning about the operation of these schemes and to promote best practice moving forwards.

It is frustrating that DWP has not led the development of a role for credit unions and CDFIs in the delivery of local welfare provision. DWP is about to release details of a £38m investment in credit unions over the next four years and has identified the need for up to 2.5 million universal credit claimants to be provided with financial services products that will allow them to better manage their money, which many credit unions are now in a position to provide. DWP is also developing local delivery partnerships to better co-ordinate and commission services to meet the needs of universal credit claimants, including in respect of personal budgeting support. In our view, these local delivery partnerships will quickly need to consider how local welfare schemes, including loan schemes and the provision of budgeting accounts, can be used as part of the personal budgeting support for universal credit claimants.

But we must also now ensure that the impacts of the shift to local welfare provision are properly monitored and evaluated, with the results fed back to government to inform future funding settlements as well as shared between local authorities and their stakeholders to improve the design and delivery of schemes moving forwards.

• The full research will be published on Monday.
  
• Read an example of a local scheme in Islington responding to the abolition of the social fund