We have almost become used to opening a newspaper and reading about the record amounts of debt the average person holds on credit cards and bank loans.
But the headlines are missing a big part of the story. For all of those who are able to access mainstream credit, there are more than three million people on low incomes who cannot and whose only options in times of unexpected financial need are the Government's Social Fund or high-interest lenders and loan sharks. For the past six months, with colleagues from a number of voluntary organisations including One Parent Families and the Resolution Foundation, we have been looking at how the welfare system could be radically reformed in this area
We are not talking about huge sums of money that people are borrowing - the average Social Fund budgeting loan is £423; the average crisis loan just £81. These are loans for essentials - to replace a broken cooker or for a winter coat, for example. But about a quarter of applications are turned down. Two thirds of these people simply go without, while a quarter go on to borrow from high-cost doorstep lenders and unlicensed loan sharks. People on benefits borrow an estimated £330m a year on home credit, with interest payments alone amounting to £140m. This works out as an average of 11% of their income being used to service high-cost debt.
We need to find ways to stop them putting such sums in the pockets of high-interest lenders. First, incomes need to be adequate and allow people the chance to build up savings to give them more independence and protect their families when there is an emergency. But the recent changes in government offer an unprecedented opportunity for radical change and reform of the Social Fund to become an agent of financial inclusion, too.
Of course, the fund's emergency loans and grants must be protected and expanded - but the private sector could also play a much more useful role by providing off-balance sheet funding to provide affordable loans for those on low incomes under a new Budgeting Loans Plus scheme. This could really turn things around - facilitating independence and offering a ladder away from home credit and, most importantly, loan sharks, towards proper financial advice and guidance, opening a bank account and supporting a savings habit that enables and empowers, rather than spending money they don't really have on sky-high interest payments.
The government would manage and administer the scheme through the Social Fund structures and Jobcentre Plus, while also ensuring that it formed part of a coherent and joined-up system.
From the banks' point of view, participation would help to fulfil a significant social responsibility to poorer communities whom they presently offer little to - but it would also open up a new market with the security of government backing. This is a challenge to banks to step forward and fulfil their responsibilities.
Over the past 10 years, Gordon Brown's old domain at the Treasury has done serious amounts of work on financial inclusion and capability. Today's new ministers must grasp the mantle and make some real progress on this massively important issue - to extend to our poorest families the financial opportunities that so many of us take for granted. Adequate incomes, the chance to save for the future, and access to affordable credit when it is needed offer the best route out of poverty. It is time for the government and the financial institutions together to take action to help end poverty for good.
· David Blunkett is an MP and former home secretary; Kate Green is the chief executive of Child Poverty Action Group