The money will go towards topping up the welfare fund, helping people in fuel poverty, families on a low income and those who are having difficulties paying their rent and council tax.
A total of £500,000 will also be used to make a top-up payment of £50 per child to those families whose children are entitled to free school meals based on benefit entitlement.
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Councillor David Alexander, co-leader of Fife Council, said: “There’s no getting away from the fact that COVID-19 has changed all our lives and with the ever-increasing cost of living, it’s leaving many struggling to cope financially.
“Money is an issue for many people across Fife, not just for those on benefits as we’re also seeing an increase in the number of people who are in in-work poverty.
“We’re doing everything we can to help people with their money worries and let them know that we can help.”
Councillor David Ross, council co-leader, added: “Many Fifers were struggling with their finances before COVID-19 but the pandemic and the increase in the cost of everyday living is making things worse.
“This funding means that we’ve now got extra money available to help even more people across the Kingdom.
"I’d urge anyone who may have applied for help before but were unsuccessful, to please get back in touch with us to see if they can benefit from this funding.”
To find out if you’re entitled to financial help, please visit: www.fife.gov.uk/moneyadvice.