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Image: small strategy unit logo Prime Minister backs bew thinking on Government loans (20/3/2002)

A new framework for the use of Government loans and proposals for harnessing new technology to improve customer access to loans are at the heart of a new report from the Performance and Innovation Unit.

The report, 'Lending Support: Modernising the Government's Use of Loans' contains a set of new criteria to help Government policy-makers judge consistently when loans are appropriate. It also announces a feasibility study to assess the potential value of joining up the administration of Government's financial transactions to citizens.

Prime Minister, Tony Blair, welcomed today's report, saying,

'Government loans can be a valuable way of helping people and businesses to develop themselves, while allowing public money to go further. The new measures announced today are geared to providing a better, more consistent service to customers.

'The feasibility study will look at longer-term opportunities of further joining up the administration of debts owed to government and of citizens' financial transactions with government. An important issue will be the potential benefits that better IT and systems can offer, as well as the costs, risks and implementation issues. Ministers will want to consider all these issues carefully, before any decisions on new approaches to administration can be reached.'

The Chief Secretary to the Treasury and Sponsor Minister for the project, Andrew Smith, said:

'The new criteria will help policy-makers judge more consistently when loans are more appropriate to use than alternatives such as grants. Loans are, of course, not always the best policy option. I should stress that we do not expect to see large switches away from current grants and other support to be replaced by loans.

'The criteria are also designed to ensure Government-funded loans are only provided where there is no suitable private or voluntary sector alternative. The Government is acutely aware of the problem of high debt levels and our work on tackling this is being expanded as a result of today's report.'

Today's PIU report illustrates the new criteria by applying them to a number of notional case studies, including a Government loan scheme for unemployed people who wish to set up in self-employment. Most existing Government loan schemes fit the criteria well.

A separate feasibility study will assess the potential value of joining up the administration of all Government loans and other kinds of debt to Government. Potential benefits of more joined up administration include:

The debt implications of all loans, including Government loans need to be considered. Debt levels have been rising and this can hit poor households the hardest. To help tackle high debt levels, an interdepartmental study on indebtedness will be undertaken by the DTI and the FSA to look at the delivery of debt advice, the role of stakeholders and of financial education.

Notes to editors

  1. The Performance and Innovation Unit reports directly to the Prime Minister through Sir Richard Wilson. Its aim is to improve the capacity of Government to address strategic, cross-cutting issues and promote innovation in the development of policy, and in the delivery of the Government's objectives.
  2. The project was announced on 7 December 2000 to appraise the respective roles of loans and other instruments as alternative means of furthering policy objectives and options for the longer-term administration of Government loans provided to further policy objectives. It was carried out by a multi-disciplinary team, supported by an advisory group and sponsored by the Chief Secretary to the Treasury.
  3. 'Lending Support: Modernising the Government's Use of Loans' published today, is available on the PIU website at www.piu.gov.uk ; and copies can be obtained by contacting the PIU on 020 7276 1416 or e-mailing to piu@cabinet-office.x.gsi.gov.uk.
  4. Four case studies have been used to illustrate the sort of areas where loans might be used: maternity loans; home improvement; support for those undertaking further education; and unemployed people who wish to set-up in self-employment. The case study areas are illustrative only, so there is no implication that they will be taken forward as Government policy.
  5. Several of the loan schemes discussed in the report are under review. DfES are reviewing student funding for higher education and will report findings later this year and DTI are considering Launch Investment as part of a wider review of business support.
  6. The report proposes two areas where further work is needed. Firstly in the area of loans administration, there will be a feasibility study to consider whether there would be overall benefits from, in the longer term, greater integration of government's debt management services and its financial transactions with citizens more generally. This study will be in two stages. The first stage of the study will be an assessment of the full benefits, costs, risks and practicalities of these proposals. If this stage showed that greater centralisation of the administration of debt recovery and/or other activities was worthwhile then, subject to Ministerial agreement, a second stage would look at the key implementation issues. Secondly an interdepartmental study on indebtedness will be undertaken to look at debt advice, This review will be led by DTI and the Financial Services Authority.
  7. The report itself is published as Government policy though the case studies are for illustrative purposes and the two follow up studies flowing from the report will be reporting to Ministers and do not represent current policy.

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