Thrifty Loans

The Government has been called upon to find a way of offering low interest loans for the poorest members of UK society. Kate Green is the chief executive of Child Poverty Action Group, and David Blunkett is the former work and pensions secretary. Together they urged Government ministers to work with banks and financial institutions from the private sector to assist three million people on low incomes who are unable to get credit from the mainstream.

Ms Green and Mr Blunkett warned that for many people struggling at the low end of the financial spectrum options were few or risky – either the Government’s Social Fund, or high interest lenders, or even worse: loan sharks. People on benefits had borrowings estimated to be around £330m a year on home credit, and interest payments came to at total of around £140m.

The private sector, said the pair, could play a more helpful role in providing off-balance sheet funding to enable people on low incomes afford loans vital to help them get on with their lives. They saw it as a way to facilitate independence, give them a route away from home credit and most crucially escape from loan sharks – who operate illegally and charge astronomical interest backed with threats – to take proper financial advice and guidance. This would include opening a bank account and saving where possible to give them new control over their own financial lives. The current alternative is to see all their money – and more – disappear on sky-high interest payments.

The banks could help to fulfil a social responsibility to people from poor communities who get precious little help at the moment and, backed by the Government, such a new market would have added security.

Ms Green and Mr Blunkett have been looking into the issue with voluntary organisations since the start of 2007, and they called on the banks to show some social responsibility.