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December 22, 2008 4:26 PM

Newcastle East Liberal Democrat Parliamentary spokesman Greg Stone has expressed concern over speculation over the future of the Department for Work and Pensions Social Fund grants.

Weekend media coverage suggested that the Government wished to introduce an annual interest charge of up to 28% by requiring beneficiaries of the Social Fund, which helps on the very lowest incomes to meet emergency expenditure on essential items such as cookers, baby equipment, or even covering funeral expenses, to take out a credit union loan subject to 2% monthly charges.

However, a furore has led the Government to hastily retreat from the idea.

Greg Stone said: "Clearly there has been a major backlash to these plans which has forced Labour to think again.

"There is a legitimate need for welfare reform but many people will see these plans as further evidence that Labour has turned its back on the very poorest in our society.

"I am aware that a considerable number of people in Newcastle East need to turn to the Social Fund in times of severe personal and financial crisis, and I feel it would be wrong to subject such unfortunate people to significant interest charges.

"I am also acutely aware that many people on the breadline in Newcastle East feel obliged to turn to doorstep lenders and 'loan sharks' offering exorbitant rates of interest as the only means of paying for Christmas presents for their children.

"I believe the Government should be doing much more to tackle the problem of financial exclusion and personal debt, and I recognise the importance of credit unions as a much more sustainable solution to dodgy doorstep lending.

"However I am very concerned that introducing interest charges on Social Fund payments is a deeply regressive step that undermines Labour's commitment to social justice."