Sunday, December 21, 2008

State to Charge Interest on Loans to Poorest?

Suggestions, reported on the BBC web site this morning, that micro loans made by the government to low income applicants may cease to be interest free represent a negative development in the way that the state treats the poorest members of society.

The Social Fund currently makes loans totaling £500 Million to about 1.2 benefit claimants. The average loan is around £400 and is typically used to buy one-off items by the recipient - a cooker, gas heater or even the cost of a funeral. The loan is repaid weekly, typically within a year, and is interest free. Under proposals currently being considered by ministers, these loans may be transferred to credit unions who would be free to charge interest, typically of between 12-26% APR.

If true, the proposal represents a poor choice for several reasons:

1. It will make life harder for the poorest. During times of economic downturn, low income people are always hit proportionally harder than others - for instance, through rising food and fuel costs and unemployment. The welfare state (remember that?) is more necessary at such times and reducing its reach is the wrong move at the wrong time.

2. It will increase poverty. Some applicants will not apply for the loan if it attracts interest. This may result in some basic needs being unmet.

3. It shifts the problem of the credit crunch from the richest to the poorest. Unlike heads of banks, the very poor don't appear on television very often explaining why they should receive government bailouts for crises which they have created. The current government's breathtaking economic bailout of the banking sector in recent months will have to be paid for. Measures like this one, along with yesterday's announcement of the sale of the government's share in the Atomic Weapons Establishment at Aldermaston, appear to be part of a long-term, low-level drive to pull in the public purse strings - a move which will certainly include tax rises in the future. It is unfortunate - unacceptable, actually - that this should be done at the expense of the poorest members of society.

Beyond the detail of the policy, however, is a far bigger picture: the existence of a permeneant underclass in British society and the growing inequality between the richest and the poorest.

Listening to Bill Patterson on Radio Five Live yesterday, I was struck by his reference to the now-closed 784 Theatre Company, which was set up in the 1970s against the backdrop of the stark fact that at the time 7% of the British population owned 84% of the country's wealth. Patterson commented that such a statistic would seem very positive thirty years on when the extent of economic inequality is so much greater.

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