How to reform the social fund

Today's fiasco does at least seem to have killed off the stupid idea of charging interest on social fund loans. But it's a good example of how we ought to change the way that we develop new anti-poverty policies.

There appears to have been an assumption in the policy document that one problem with the way that the social fund works at the moment is that it just gives people loans without giving them financial advice. It is the idea that lack of education causes poverty - if only people were better at managing their money, then they wouldn't need these loans.

But the overwhelming majority of people who apply for social fund loans are better than the average person at managing their money, certainly better than I am, and I'm pretty certain better than James Purnell or any of his advisers - they have to be because benefit levels are so low. But even with the best financial advice in the world, there is a mismatch between how much people living in poverty have to spend, and how much they need.

I'm all for some of the ideas in the paper - I helped set up a credit union and I'm all for giving more people a chance to become members, and changing the rules about what you can get a loan for and opening up the social fund to working people are all good ideas, as is teaching all people about how they can manage their finances better. But there are other ideas, such as raising benefits and making grants, not just loans, available, which should have been at the heart of this strategy. And the idea of replacing loans at 0% interest with those at 28% interest would, of course, have been dismissed straight away.

When developing policies to reform the social fund (or any other anti-poverty policies) people on benefits and those who are working on low incomes should be recognised as the experts and involved right from the start, rather than treated as unskilled victims in need of educating.