Voluntary groups may take over Social Fund

David Blunkett, the Work and Pensions Secretary, risked controversy by saying that outside organisations might operate the £718m-a-year fund, which helps poor families buy essential items such as cookers and children's shoes.

He promised an extra £210m over the next three years, but added: "In the longer term, we cannot stop there, but must look more widely at whether the fund should be operated by government or whether there is scope for greater partnership arrangements with third sector lenders."

Mr Blunkett said reform of the Social Fund could be linked to government schemes to encourage people to save "so people build assets, become more financially confident and do not need to rely on emergency payments from the state in the future". For example, when people had paid off a government loan, they might continue to save the same amount each month so they could draw on the money in a future financial crisis.

Aides insisted that he was not proposing to privatise the Social Fund, which is expected to provide £580m of loans and £138m of grants in the current financial year. Mr Blunkett told the Institute of Public Policy Research think-tank that the Government needed to address the "asset gap" under which a section of society missed out on the benefits the better-off received from inheriting homes and wealth from their parents.

He said: "Recent years have seen an ownership revolution - from business and share ownership to homes. Now we need to think about the change in the next 30 years when grandparents, aunts and uncles pass on their assets to the next generation.

"But as well as opportunity there is also danger as those who are asset-poor will become ever more entrenched in their poverty and ever further from the asset-rich. We face a new equality challenge. There are still major issues of income inequality - but physical assets and financial holdings, share and bank balances, all provide the backcloth to the divide of the future."

He said it was crucial to enable people to build assets to prevent poverty. "Asset policies can offer unparalleled opportunity in the fight to prevent future poverty, stopping people falling into poverty when circumstances change, and by enabling families to build intergenerational stepping stones out of poverty."

Aides said Mr Blunkett was not talking about penalising the better-off but helping everyone to enjoy the same opportunities.