Low-income families could be offered access to no-interest borrowing under Government plans to prevent vulnerable individuals falling into the hands of loan sharks and costly payday lenders.
In the Budget on Monday, Chancellor Philip Hammond will announce ministers are to look at ways of partnering with debt charities and the banking industry to offer interest-free 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 high cost credit users.
A Government feasibility study to be carried out in 2019 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.
But the plans were dismissed by shadow chancellor John McDonnell, who said ministers are now trying to address problems they themselves had been instrumental in creating.
“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,” he said.
Watch the Budget live on itv.com/news from 3.30pm on Monday.