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Labour pledges to cap credit card interest

Around three million people are thought to be trapped in persistent debt. Credit: PA

Borrowers would see their interest capped so that no-one pays back more than twice the amount of their original loan under a Labour Government, the shadow chancellor has announced.

John McDonnell made the pledge to help tackle a "debt crisis" as he gave a speech at the party's annual conference in Brighton.

He said that falling wages in real terms under the Conservative Government have created a "perfect storm" that forces families to take on debt to make ends meet.

Around three million people are thought to be trapped in persistent debt. Credit: PA

Mr McDonnell challenged ministers to apply the same cap on credit card debts as on pay-day loans, limiting interest and charges to 100% of the amount borrowed.

If they fail to act, Labour will change the law when it wins power, he said.

John McDonnell with Jeremy Corbyn at the Labour conference. Credit: PA

It comes as data shows that Britons' consumer borrowing has swelled to more than £200 billion for the first time since the crash of 2008, and overall household debt stands at a record of more than £1.8 trillion.

The Financial Conduct Authority estimates that more than 3 million credit card users - a tenth of the total - are in persistent debt, handing over more in interest and charges than in paying down their loans over the past 18 months.

The average amount outstanding for those in persistent debt is £3,464, meaning that these people between them owe around £14 billion on their cards.

Chief Secretary to the Treasury Liz Truss said reforms are on the way. Credit: PA

Chancellor Philip Hammond cast doubt on the practicality of Mr McDonnell's policy proposition.

"It isn't entirely clear to me how this would be proposed to work," he said.

"Because credit card debt tends to be revolving, people borrow some then they pay some off and then they borrow some more, it isn't clear how you would do that baseline calculation.

"I'm not sure whether this is a practical proposition."

Mr Hammond also said: "The FCA is conducting a review into credit card debt, which we expect to report in the third quarter of this year."

UK Finance chief executive Stephen Jones said consumer credit helped drive economic growth.

He said the FCA had looked considered whether a cap on interest charges should be introduced, but concluded that there were preferable alternatives which the industry will implement when a consultation is concluded later this year.