Minister denies Tories' loan claims

Dec 21 2008

The Government has denied that it is considering charging interest on loans offered to some of Britain's poorest families to help them through household financial crises.

Reports suggested that people on benefit accessing the social fund loans could be hit by interest rates as high as 27% under proposals being considered by the Department for Work and Pensions.

Conservatives accused the Government of behaving like loan sharks, with shadow cabinet member William Hague branding the idea "astonishing and outrageous".

But work and pensions minister Kitty Ussher said the Government was "absolutely not" proposing charging interest on loans from the fund, which currently pays out £500 million a year.

She said that ministers were considering involving credit unions in the distribution of the loans.

But while credit unions are permitted to charge interest of up to 2% a month on their own loans, they would not be allowed to do the same with Government products.

Ms Ussher told BBC News Channel: "We are absolutely not proposing to charge interest on social fund loans. I think that would be the wrong thing to do.

"We do propose expanding the way that crisis loans work, to make them more available to more people, but we are not proposing charging interest.

"I think the confusion has arisen because one of the things we do want to do is explore partnership working with great organisations which in local communities do give affordable credit, such as credit unions."

Ms Ussher said that loan sharks were lending money at rates of up to 1,000% and ministers wanted to make credit more easily available so that people in difficulties are not tempted into their hands.