Leading article: Don't leave the poor prey to the loan sharks

Ministers should not shy from tough decisions in the recession
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The Independent Online

Bad news from the job market continues to flood in. There will be a surge in unemployment in the new year, when the likes of MFI and Woolworths close their doors. And, as we report today, this is likely to be accompanied by a glut of lay-offs in the public sector. Predictions that unemployment will reach 3 million by this time next year are beginning to look increasingly plausible. The Government certainly seems to be expecting a dramatic deterioration in the jobless figures. Today, we carry a warning from a Cabinet minister that a jobs "bloodbath" looms in 2009.

As we know, when there is blood in the water, sharks are usually not far away. And there are few more vicious predators in the credit waters than loan sharks. An unlicensed Birmingham lender, Mark Washington Johnson, was jailed three years ago for charging his "customers" 8,000 per cent annual interest. Other crooks like him will be salivating in anticipation of fat profits as tens of thousands lose their jobs.

The number of people on low incomes applying for loans from the Government's £500m social fund this year has already risen by 40 per cent. A third of these applicants were turned down. Supply is not keeping pace with demand. High street banks, as they desperately seek to reduce the size of their balance sheets, are contracting lending to even credit-worthy borrowers. The less well off have no chance of tapping mainstream supplies of credit in the present environment. Many will have nowhere to turn except to unscrupulous and rapacious lenders.

A new Department for Work and Pensions consultation document has examined the problem and suggests allowing private credit unions, small savings and loan co-operatives that serve the less well off, to administer state loans. But this has prompted a chorus of outrage. The Tories, citing the 12 to 27 per cent interest that credit unions typically charge, have accused ministers of attempting to profit from the distress of the poor. This ill-judged complaint has been echoed by some in Labour's own ranks. The Government has been rattled. The Work and Pensions minister, Kitty Ussher, took to the airwaves to reassure the public that, contrary to the impression given by the consultation document, these credit union interest rates would not apply to any new Government social loans (although not before the Defence Secretary, John Hutton, had declared the original plans "a good idea").

It would be foolish if these proposals were ditched in their entirety, because their thrust is laudable. Anything that can stop the poor and vulnerable falling prey to loan sharks is welcome. And there is much to be said for tapping the local knowledge of credit unions when administering social loans. Civil servants have little competence to distinguish between those who genuinely need to borrow and those who are trying it on. The details will, of course, need to be carefully scrutinised, but bolstering credit unions seems a sensible way to get third parties involved in lending to the most needy.

The credit crunch is threatening to make this recession long and deep. Channelling funds through credit unions is one way the Government could help alleviate the situation. There is no quick political fix for the problem of spiralling unemployment. Only economic recovery will get the newly jobless back into work. But there are actions the state can take to help cushion the impact of the downturn. Ministers have a duty to examine them. It would be farcical for them to retreat from sensible ideas at the first whiff of opposition gunfire.

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