End 'hole in wall' benefit loans

The Crisis Loan payment system provides interest-free loans of up to £1,500 for those in dire need.

But costs are rocketing as claimants treat it like a hole-in-the-wall machine for benefits cash, a report leaked to the Daily Express reveals.

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Hundreds of thousands of people are abusing the system, which is costing £1million a day, according to the Department for Work and Pensions.

Officials are now pledging a crackdown so that the payments only go to those in most need.

A DWP source said: “Crisis Loans are meant to help people in an emergency who have no other means of support, not used as wads of cash to be frittered away. Crisis Loans need reform now to protect those in genuine need.”

The scheme was set up in 1988 to help people in real emergencies, such as having cash stolen leaving them unable to pay for food, or replacing household items after a fire or a flood.

The DWP report reveals that 200,000 people received more than three Crisis Loans in the past year at a total cost of about £81.5million. A further 17,000 ­people have received 10 or more ­Crisis Loans in the past year.

If this situation continues, the Government’s budget for these loans could run out, leaving ­people genuinely in need without a safety net and having to resort to borrowing from loan sharks.

Crisis Loan assessors consider each request, made via a free phone number or a form available online or in Jobcentres.

Benefit claimants, foreign-born migrants and workers over 16 may apply, but hospital patients, care home residents, students, prisoners and vicars may not.

Applicants are not allowed to ask for help with education or training, uniforms, school travel, medical costs, holidays, telephone bills or a television.

Loans are granted if people can convince an assessor their circumstances meet the requirements and they can agree a repayment plan. But no in-depth checks or home visits are made by DWP staff.

The average payment of just under £100 is made by cheque.

Most applicants are on benefits and can have their repayments deducted at source.

But a DWP source said: “You don’t have to be on benefits to apply and we’re finding many workers get the loan and then don’t pay it back.”

Borrowers are only expected to repay the loan after their crisis is over and deductions are made at 12 per cent, 10 per cent or five per cent of their weekly benefit. They have two years to pay it back.

Minister for Pensions Steve Webb said: “These figures show the system is a sticking plaster solution that isn’t addressing the real problems people are facing.

“This is why we’re replacing it with local schemes so loans go to those who need them most.”