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Department of Social Care to tackle abuse of budgeting loans scheme

Monday, 13 May 2013

The Department of Social Care will shortly be submitting legislation to Tynwald which is intended will prevent abuse of its budgeting loans scheme and make it more equitable.

Budgeting loans are available to certain people who receive income-related benefits to help them meet one-off items of expenditure, such as the payment of deposits for accommodation and the initial purchase or replacement of household furniture and equipment. Budgeting loans are also available to provide financial help to claimants who have lost cash. They were introduced in April 2004.

Currently, budgeting loans can be for up to £1,000 (irrespective of family size) and are interest-free. Claimants are required to make regular repayments from their benefits, or if they leave benefit to agree other repayment arrangements with the Department. If a claimant or their partner has a debt with the Department at the time of their application, by way of an outstanding budgeting loan or benefit overpayment, the maximum amount they can receive is £1,000 less twice the amount they owe to the Department.

Commenting on the issue, Minister for Social Care, Hon. Chris Robertshaw MHK said:

'There is clear evidence that a number of claimants are abusing the provisions of the budgeting loans scheme. For example, currently a claimant can only qualify for a budgeting loan in respect of lost cash once in any 12-month period. In the last five years three claimants have received a loan in respect of lost cash in each of those five years; 10 have received 4 loans, 32 have received 3 loans and 66 have received 2 loans. Some claims were made within just a few days of the anniversary of the payment of the claimant’s last budgeting loan for lost cash. And these claims were not just for a few pounds - they were often for the equivalent value of the whole of the benefit payment they had just received.'

The Minister went on to say:

'There is also evidence that some claimants regularly claim budgeting loans for other reasons – seeking to top up their loan to the maximum available on each occasion. The budgeting loan scheme is there to help people in genuine need, however, it is clearly being abused by some claimants, who are effectively using the Department as a cash machine, “maxing-out” their credit each time. So, we are going to tighten-up the rules to prevent such abuse, whilst ensuring that there is still a safety net for those who really need it. Subject to Tynwald’s approval, budgeting loans for lost cash will in future only be available to individuals once in a lifetime. Furthermore, claimants will only be eligible to get a budgeting loan once every two years, so they will have to think very carefully whether they really need a budgeting loan at any given point. We are also going to tighten up on the repayment of budgeting loans, with a default repayment rate of £12.50 per week. And to make the scheme more equitable, we will reduce the maximum loan available to single claimants to £750 and to £850 for couples who do not have dependent children.'

The Minister added:

'As well as budgeting loans, my Department also provides non-refundable exceptional needs grants to certain vulnerable people who receive income support or income-based jobseeker’s allowance to help them establish a new home. These include young persons leaving the care of my Department, people who have had to leave their previous home due to domestic violence and certain people who have just left hospital or prison. A grant may also be payable to a person at the outset of their benefit claim if they cannot manage until their first benefit payment is due. There are no plans to change the existing arrangements for exceptional needs grants at this time'.

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