Philip Hammond is to launch an assault on loan sharks and payday lenders in Monday’s Budget as he unveils a government plan to explore a no-interest loan scheme for those on low incomes in Britain.

Taking aim at “problem debt”, the chancellor will reveal his plan to establish an alternative for the estimated 3 million individuals who currently use high-cost credit from companies such as the now-defunct, Wonga.

Ahead of the Budget, the Treasury said the government would partner with debt charities and the banking industry to help those on lower salaries “pay for life’s unexpected costs”.

The announcement comes as Mr Hammond faces pressure to outline how he intends fulfil Theresa May’s pledge to end the era of austerity in Britain, and answer calls from cross-party politicians to halt and fix the universal credit welfare reforms.

But the chancellor’s opposite number, John McDonnell, said it was “farcical form” from the Conservatives, adding that in government the party 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”.

The Treasury said a study looking into the feasibility of a no-interest loan scheme will be launched in 2019 and examine how a pilot could work in the UK.

Pointing to a similar scheme established in Australia, officials said it had experienced widespread success and helped four out of five users stop applying for payday loans. People experiencing financial difficulty in the country have the option of accessing interest-free loans of up to $1,500, with repayments set up over a 12-18 month period.

In 2017, Good Shepard Microfinance, the organisation offering the no-interest loan scheme in Australia, granted 27,000 loans nationally – an increase of 15 per cent on the previous year.

“A scheme like this could offer the UK’s 3 million high-cost credit users a more affordable alternative, and help prevent people from falling into debt, or in extreme cases turning to loan sharks,” Mr Hammond’s department said.

The chancellor’s plan to tackle the use of payday lenders comes after Wonga – notoriously known for alarmingly high interest rates – collapsed in the summer and the Church of England raised the prospect of the creation of an ethical lender.

The company had previously charged interest rates in excess of 5,000 per cent before ministers implemented caps, regulated by the Financial Conduct Authority.

The Treasury said Mr Hammond will also publish proposals on a “breathing space”, giving people in problem debt legal protectors from creditor action.

It is expected he will increase the period to work towards a solution, given to those facing serious debt, from six weeks to 60 days.

Labour’s shadow chancellor, Mr McDonnell, added: “Breathing space is just another policy taken straight from Labour’s 2017 manifesto – £2m giveaway gimmicks to ‘entrepreneurs’ will do nothing to prevent more people falling into debt traps, since these measures do not cap excessive interest rates and other fees, as campaigners and Labour have demanded.

Sean O’Grady, Rob Merrick and Cait Morrison discuss the upcoming budget

“Labour will tackle problem debt head-on by extending payday lending rate cap to credit cards and overdrafts, and introduce a £10 an hour minimum wage to lift people out of low pay.”

Responding to Mr Hammond’s announcement, Martin Lewis, the founder of MoneySavingExpert.com, said it was “good news” the government was looking at the Australian-style system.

He added: “We’ve been held at the mercy of payday lenders and exorbitant interest rates for far too long. As we celebrated Wonga’s recent demise, it again shone a light on the fact that ever since the decimation of the government social fund loans, there’s only been flaccid provision for cheap short-term emergency loans for many who are struggling.

“The only slight disappointment is the lengthy timetable – that needs accelerating rapidly so a pilot is up and running by 2019.”

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The announcement came as the Treasury also revealed Mr Hammond’s plans for a £30bn investment for England’s roads, as part of a package of measures in the Budget aimed at improving the country’s transport network.

The Treasury claims the funding boost – to pay for motorway improvements, major new roads and improving poor links – far exceeds the cash provided during the previous five years.

The chancellor is expected to tell MPs that he is setting up £28.8bn investment – to run over five years from 2020 to 2025 – which will in part be funded by revenues from vehicle excise duty; the first time road tax has been ring-fenced for use on the roads network.

It outstrips the £17.6bn invested over the previous five year period and represents a 40 per cent increase in the budget of Highways England.



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