From October, the Government plans not to meet the bill for the first 40 weeks of a claim by new borrowers, and to pay only half of the costs from week 9 to week 26 for existing borrowers. The intention is that private insurers will cover the gap.
But proposals disclosed to the Social Security Advisory Committee detail a string of further cuts. Where people do not have private cover but payments are deferred, interest on the accumulated arrears will not be paid.
The new "standard rate" of interest to be paid will be set "at or around" the average. But it may not change every time interest rates change. And where individuals pay interest at above the average, the DSS will not meet that bill, even though ministers concede there will be "significant losers".
Where the standard rate would produce significant gainers - about 2 per cent of claimants have mortgages at 5 per cent or below - only the amount they are actually paying will be covered. Without that, "it could be argued that there is in some cases a substantial advantage for this group to stay on benefit", the department has told the committee.
The new disqualification periods, however, will start from when people claim unemployment benefit, or the new jobseekers' allowance, so that those who use savings to pay their mortgage are not penalised. The Government accepts that the new restrictions, which include not paying interest on mortgages larger than £100,000, cannot be applied to pensioners on income support.
Shelter said yesterday that lone parents on income support, who are not actively required to look for work, appeared to be caught by the new rules, and that the Government was being "disingenuous if not dishonest" in claiming that the new standard rate was intended merely to simplify operations, not withdraw benefit further.
The charity said it feared the proposals "will spark a fresh wave of repossessions". Ministers claimed in their submission that even without the proposals "lenders and insurers would have had to review their strategies for the long term in any event".Reuse content