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Credit union warns of benefits time bomb

Shetland Islands Credit Union's new project manager Jeff Goddard

A BENEFITS time bomb is set to explode next year when government welfare reforms kick in, according to the local credit union.

On Monday Shetland Islands Credit Union announced they had appointed chartered accountant Jeff Goddard as project manager on an eighteen month Lottery-funded contract.

Goddard, the former Shetland Charitable Trust finance manager, started work last week raising the profile of the community financial organisation and hopes to help make it self sustaining.

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His appointment comes at a time when the Scottish government is advising people to choose credit unions as an ethical and affordable alternative to payday loans in the run up to Christmas.

Soon Goddard will also be able to provide financial advice during 45 minute sessions on issues such as pensions, mortgages and switching utility providers.

However the credit union’s major concerns hinge around the imminent roll out of the UK government’s plans for welfare reform.

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Chairman Gordon Mitchell has warned that people have no idea of the kind of difficulties the introduction of Universal Credit will bring to households throughout Shetland.

“Welfare reform is a time bomb waiting to happen and will affect an awful lot of people, most of whom don’t realise the horrors that await them,” he said.

“When it rears it ugly head there are all sorts of problems going to come out of this nasty business and we are expecting a lot of people to be struggling with a lack of advice which the UK government is not providing at the moment.”

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SICU chairman Gordon Mitchell

The first crisis will come when benefits move from fortnightly to monthly payments, leaving some people with no cash coming in for up to six weeks once they first become unemployed.

This is already happening in parts of Britain where pilot schemes are being rolled out, and people are “desperately champing at the bit” to get their money from the Department of Work and Pensions, Mitchell said.

Further problems are likely to arise with the government’s decision to restrict benefit applications to the internet or the telephone, a process likely to take up to two hours and prove very difficult some people.

Not only will the government roll all people’s benefits into one single payment, including everything from housing benefit to job seeker’s allowance, but the “head of the household” will receive one single payment for every member of that household.

There are fears that such lump sum payments will encourage people to buy luxury goods they can not afford, and end up falling behind with their rent.

This in turn could have a knock on effect on housing associations being able to borrow money to build houses.

“Most people, including people on benefits, don’t know anything is going to happen. We are sleepwalking into this,” Goddard said.

To alleviate future difficulties Shetland Islands Credit Union (SICU) is offering low interest bridging loans to help when Universal Credit kicks in next September.

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“Somebody who is a regular saver will be able to talk to us about loans, but we don’t do loans for people that come off the street, so if someone wants to plan ahead to borrow some money to tide them over they should come and see me as soon as possible,” Goddard said.

SICU can also open “jam jar accounts” and help distribute benefits fairly within each household, rather than leaving it up to one individual.

From February Goddard will have received government training in financial advice to help people manage their money more effectively.

His job is being paid for out of a £282,000 funding boost to the Citizens Advice Bureau (CAB) from the National Lottery Support & Connect Fund in July.

The money is also paying for a CAB outreach service at Lerwick Health Centre opened in September, where people can go for debt advice amongst other things.

SICU now has 230 saving members who have deposited more than £200,000 with the organisation, which are protected under the UK government-sponsored Financial Services Compensation Scheme.

On Monday the Scottish government put its weight behind credit unions with its “12 Days of Debtmas” campaign aimed at people who may end up in trouble in the run up to the festive season by taking out high interest, short term loans.

Scottish enterprise minister Fergus Ewing said: “It costs significantly less to borrow money from a credit union than taking out a payday loan and you receive much more support in managing your finances.”

More information about SICU can be found here or by phoning the office at 01595 691044.

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