The government is going to explore the idea of zero interest loans to help the millions of people caught in…
The government is going to explore the idea of zero interest loans to help the millions of people caught in a cycle of problem debt caused by borrowing from high-cost providers, such as payday lenders.
Campaigns welcomed the development, which will be presented by Chancellor Philip Hammond in the budget on Monday, but they called on the government to proceed to protect low-income households from exploitative lending practices.
Working MP Stella Creasy, a prominent player against payday lending, urged ministers to move forward by introducing an interest rate on all forms of borrowing, which she said would help prevent people from having financial problems first.
“Waiting for people to get into trouble when we know what prevents them not only to be cruel, it’s much more expensive for all concerned,” she said.
Carl Packman, Corporate Commander of the Fair By Design Campaign, a charity investigating the impact of high-cost credit, said: “We also need the Chancellor’s plan to be linked to an extension of price caps on other forms of credit as rent for own products and cash credit. “
Hammond is expected to disclose system details along with other flagship taxes and spending plans in the budget. The government is also expected to initiate a consultation with the debt and banking sector to provide interest-free loans.
The Ministry of Finance believes that such a system could solve the problem of problem debt for the 3 million people in Britain who borrow from high-cost providers such as payment companies and credit card providers.
By helping low-income families with a cheaper alternative, it would also remove the pressure on them to borrow from illegal loan sharks. The government said a feasibility study would be carried out next year to investigate how a pilot could work in Britain after the success of a similar system in Australia.
The State Treasury says that the Australian system helped four out of five of those who took a loan without interest to stop using payday loans.
It said that it would also extend the “breathing space” that people can put their economy in order from six weeks to 60 days and start a £ 2m fund for technology companies to create products to make it easier for people to borrow from reasonable lender.
Despite the great welcome from debt campaigns, the measures are likely to increase some eyebrows, as government tightening measures tended to drive more people against high-cost credit.
Campaign groups believe in the introduction of universal credit and cuts to benefits since the conservative governments entered 2010 has increased the risk of households getting into problem debt.  Wonga, affiliate child in the payday industry’s lending industry, collapsed this year, but campaigns say that tough economic conditions force more people to take out high-cost loans.
If one in seven people across the UK borrowed money to meet a household’s needs last year, according to StepChange debt sensitivity, about 1.4 million resort to high-cost credit.
Bank of England has become increasingly concerned about the rapid growth in personal credit card, loan and car financing, which has returned to levels seen most recently before the financial crisis.
British households spent on average about 900 dollars than they received in income last year, the first time people spent more than they earned since the start of the credit card boom in the 1980s.
Economists have become sensitive to benefits, lack of wage developments and higher inflation since the EU referendum two years ago.
John McDonnell, the shadow chancellor, said: “Thats s farcical from a government that has monitored the expansion of high-cost problem credit on an industrial scale, and whose flagship social security policy, universal credit, operates low-income households in debt.”