Interest-free loans to stop payday borrowing studied

Low-income families could be offered access to nointerest borrowing under UK Government plans to prevent vulnerable individuals falling into the hands of loan sharks and costly payday lenders.

In the Budget tomorrow, Chancellor Philip Hammond will announce ministers will look at ways of partnering with debt charities and the banking industry to offer interestfree loans to those in need.

Officials say a similar scheme in Australia has proved highly successful, helping four out of five of those who took the loans to stop borrowing from payday lenders.

Ministers now want to see if such a system could be used to provide a more affordable alternative for the UK’s three million highcost credit users.

A government feasibility study to be carried out next year will look at how a pilot project could operate in the UK.

In other moves, Mr Hammond will announce an extension to the “breathing space” for people in problem debt, offering legal protections from creditor action, from six weeks to 60 days, giving them more time to get their finances back on track.

It follows a consultation earlier this year in which evidence was taken from charities, campaigners and the financial services industry.

The chancellor is also offering a £2 million challenge fund for tech entrepreneurs who can come up with solutions to counter the appeal of the payday lenders who offer access to cash in as little as 10 minutes.

“Where we have to make the system work better, that is what we will do”

But the plans were dismissed by shadow chancellor John McDonnell, who said ministers were now trying to address problems they themselves had been instrumental in creating.

Mr McDonnell said: “This is farcical from a government that has overseen the expansion of high-cost problem credit on an industrial scale, and whose flagship social security policy, Universal Credit, is driving low-income households into debt.”

Meanwhile, Work and Pensions Secretary Esther McVey has acknowledged further change is needed to the system of Universal Credit (UC) amid fresh warnings it is causing “unacceptable” hardship to claimants.

Ms McVey denied presiding over a culture of “indifference” after a committee of MPs accused her department of turning a “deaf ear” to widespread concerns about the impact of the benefit changes.

However, with UC – which merges six benefits into one – due to be rolled out across the UK over the next five years, she accepted the system needed improvement.

“Where we have to make the system work better, that is exactly what we will do,” she told ITV News.

She added: “Where we need extra support for people, we will adapt and change.”

Her comments came after the Commons public accounts committee warned a “fortress mentality” at the Department for Work and Pensions meant it was failing claimants struggling to adapt to the new system.

The committee’s report adds to the pressure on Mr Hammond to come up with additional support for UC when he delivers his Budget statement in the Commons today.

IN THE RED: The chancellor will say that ministers are looking at ways of helping people on low incomes to avoid using high-cost lenders