What is replacing the social fund?

29 April 2013
Issue 233 (April 2013)

David Simmons looks at alternative provision following the abolition of the discretionary social fund (SF) from 1 April 2013.


The Welfare Reform Act 2012 provides for the abolition of the discretionary social fund – ie, crisis loans, community care grants and budgeting loans.1 Crisis loans and community care grants are abolished from 1 April 2013. No applications can be made after that date but applications made before 1 April must be determined and can result in a payment after 1 April.2 Budgeting loans can still be applied for by claimants in receipt of income support, income-based jobseeker’s allowance and income-related employment and support allowance until they are transferred onto universal credit (UC). Budgeting loans will also remain available to pension credit claimants for the time being.3 Claimants in receipt of UC will be eligible to apply for a ‘budgeting advance’ (see below).

Also abolished from 1 August 2012 are the Social Fund Commissioner and the Independent Review Service (IRS) which oversee second-tier reviews carried out by social fund inspectors.4Claimants will still be able to request a review by the DWP. Applications for a further review will be dealt with by the IRS up to 1 August 2013 and by the office of the Independent Case Examiner after that date.5

The abolition of the discretionary SF is a hugely controversial issue. The government argues that SF decision making was too remote to target help to those most in need and that the spiralling number of applications for crisis loans was not sustainable. It believes that local authorities (LAs) and the devolved administrations are better placed to meet local need via local provision and is transferring the relevant SF funding to LAs for this purpose (see below). Critics argue that the abolition of the discretionary SF represents the removal of a vital safety net at a time when the poor are experiencing huge financial pressures and cuts in their benefit entitlement. They also believe that hard-pushed LAs will not have the resources (in terms of funding, staff and organisation) to cope with the demand for assistance from poor and vulnerable residents.

In essence, there will be two main sources of provision in place of the social fund:

  • The first is ‘payments on account of benefit’ from the DWP. These are ‘short-term advances’ (loans) to benefit claimants in financial need waiting for an initial payment or an increase in their entitlement. Payments on account in the form of ‘budgeting advances’ will also be available to claimants in receipt of universal credit as a replacement for SF budgeting loans.
  • The second is local welfare provision provided by LAs and the devolved administrations.

Payments on account

Short-term advances

A payment on account of the following benefits by way of a ‘short-term advance’ can be made if a claimant satisfies the rules set out below:6

  • income support (IS);
  • jobseeker’s allowance (JSA);
  • employment and support allowance (ESA) and incapacity benefit;
  • universal credit (UC);
  • pension credit (PC) and state retirement pension;
  • maternity allowance;
  • bereavement and widow’s payments;
  • carer’s allowance;
  • industrial injury benefits.

The rules replace the previous ‘interim payments’ provisions which applied to most benefits. Note that housing benefit has its own ‘payments on account’ provision with different rules.

A short-term advance is only payable to claimants who are in ‘financial need’ (see below) because of the following circumstances:

  • they are waiting for their claim to be decided (or for an award if they are not required to make a claim) and it appears to the DWP that they will qualify for benefit; or
  • they have been awarded benefit but are waiting for the first payment or an increased payment, or have not received payment on the due date, or have received a first pay-ment for a shorter than normal period.

‘Financial need’ is defined as ‘a serious risk of damage to the health or safety’ of the claimant or the claimant’s partner or children.

A payment cannot be made pending an appeal about the benefit in question.

Short-term advances are loans which are normally recovered by deductions from ongoing benefit entitlement.7Payments are discretionary and there is no right of appeal, but a claimant could ask for a reconsideration by making representations. The only legal remedy is judicial review.

Although short-term advances go some way to replacing ‘interim payments’ and crisis loans, they are much more restricted in their scope. They are only payable to benefit claimants in very prescribed circumstances. They do not cover most situations where a person has no or insufficient money to meet basic needs – eg, because it has been spent or stolen. In these circumstances, the person would have to approach the LA for assistance (see below). The fear is that claimants may turn to ‘payday loan’ companies, many of which have recently been heavily criticised by the Office of Fair Trading for malpractice and charging exorbitant interest rates.

Budgeting advances

These will only be payable to UC claimants who have been in receipt of UC, ESA, IS, JSA or PC continuously for at least six months (unless the payment is for work expenses – ie, ‘obtaining or retaining employment’). Single claimants must not have earned more than £2,600 in the six months prior to applying for a payment. Couples must not have earned more than £3,600 in the relevant period.8

A payment can be made to meet an ‘intermittent expense’. The minimum payment is £100 and the maximum is £348 for a single person without children, £464 for a couple without children and £812 for a claimant responsible for a child. Any payment is reduced by the amount of capital the claimant has in excess of £1,000.

Budgeting advances are normally recovered from ongoing UC at a maximum rate of 15 per cent of the standard allowance. They go some way to replacing SF budgeting loans but a payment cannot be made if another budgeting advance has not been fully repaid, or if the DWP is not satisfied that the claimant will be able to repay the loan. Payments are discretionary and there is no right of appeal, but a claimant could ask for a reconsideration by making representations. The only legal remedy is judicial review.

Local welfare provision

Responsibility for support previously offered through the discretionary SF which is not covered by payments on account (see above) has been devolved to LAs and the devolved administrations in Scotland and Wales from April 2013. This involves the transfer of funding from central government, based on total spend and local expenditure in each area in 2012/13, plus additional funding for administrative and set-up costs. The government argues this will result in better targeted and more efficient use of the resources. Critics argue that the funding is insufficient to meet local need at a time of increasing demand for assistance and that hard-pressed LAs will struggle to provide a fair and efficient service. Crucially, the transferred funding is not ‘ring-fenced’ and LAs are ‘not expected to replicate the previous community care grant and crisis loan schemes’. There are no new legal duties on LAs to provide for the abolished national schemes. This is to allow provision to be tailored to meet the needs of local communities. The government expects ‘funding to be concentrated on those facing greatest difficulty in managing their income...perhaps through a mix of cash or goods, aligning with the wider range of local support already on offer’.9

In practice, most LAs plan to provide a range of emergency payments (including the current discretionary housing payments and payments to families under section 17 of the Children Act 1989), plus emergency provision through cash payments or vouchers and payments in kind through local services such as food and furniture banks. It is clearly important for local advice centres to know what local provision is available, who can apply for assistance, how to access it and how to challenge decisions. If this has not been made clear in information provided by LAs, local organisations may wish to use the Freedom of Information (FOI) Act to make FOI requests for further information. There is no national appeal or review system for challenging decisions, but as well as using local review and complaint systems, complaints could be pursued via local councillors and MPs, and to the Local Government Ombudsman. The only legal remedy is judicial review.

The Scottish government is introducing a national scheme for Scotland called the Scottish Welfare Fund which will provide community care grants and crisis grants. Payments will be administered and made by local authorities based on national guidance

More details can be found on the Scottish government website (www.scotland.gov.uk). The Welsh government is introducing a national Discretionary Assistance Fund, which will be administered by Northgate Public Services in partnership with Family Fund Trading and Wrexham County Borough Council. It will provide grants in the form of ‘individual assistance payments’ to enable or sustain independent living, and ‘emergency assistance payments’ to provide assistance in an emergency. More details can be found on the Welsh government’s website (www.wales.gov.uk).

Please be aware that welfare rights law and guidance change frequently. Therefore older Bulletin articles may be out of date. Use keywords or the search function to find more recent material on this topic.

  • 1. s70(1) Welfare Reform Act 2012
  • 2. See Welfare Reform Act 2012 (Commencement No.6 and Savings Provisions) Order 2012, SI No.3090
  • 3. They are likely to be replaced by ‘budgeting advances’ (see above) at some future date.
  • 4. s70(2) of the Act and Article 2 SI 2012 No.3090
  • 5. See statement by Steve Webb, Pensions Minister, Hansard,15 January 2013
  • 6. Part 2 Social Security (Payments on Account of Benefit) Regulations 2013, SI No.383
  • 7. In the case of UC, JSA, ESA and PC, there are maximum recovery rates.
  • 8. Part 3 SI 2012 No.383
  • 9. See letter from Steve Webb, Pensions Minister, to LA chief executives dated 6 August 2012, available from the DWP website