Campaigners say scheme for lower-paid workers should be accelerated in face of coronavirus crisis

The government has committed to piloting no-interest loans for people on low incomes, but is resisting calls for the support to be accelerated to tackle the coronavirus recession.

The coronavirus crisis has prompted concerns that people on low incomes could fall through the gaps in the government’s support, causing them to look to payday lenders and other providers of high-cost credit to pay for essential goods during the lockdown, when they are unable to look for work.

A Treasury-commissioned report found that a no-interest loan scheme (Nils) would be feasible, with money either loaned by a central government body or by existing lenders, with a potentially quicker rollout. Funding could come from government, levies on the banking or gambling sectors, or the National Lottery, the report said.

Such a scheme would mainly target lower-income earners who cannot afford to repay interest on loans of between £200 and £2,000, although they would still have to repay the amount borrowed. The study found that more than 400,000 people in Britain would be eligible.

The report was published last month by its authors, the consultancy London Economics, but has not been published on the government’s website despite being completed last year. A Treasury spokesman said the government would pilot the scheme, but declined to give a timetable or to say if it was considered by the chancellor, Rishi Sunak, as a coronavirus relief measure.

In the past fortnight almost a million people have applied for universal credit, the main form of income support, despite large incentives for businesses to retain workers.

“If there was ever a time to recognise the need to reform access to credit it is now,” said the Labour MP Stella Creasy,who has campaigned against high-cost credit. “That the Treasury has evidence on how to do this makes the case even more compelling for action as it shows it’s possible even when there isn’t a financial crisis looming.”

Peter Tutton, the head of policy at the debt charity StepChange, said no-interest loans should be expedited, alongside the more flexible application of universal credit and help for community lenders and credit unions.

“With nearly 10 million people already under financial pressure before the current crisis, it’s vital to find better alternatives to high-cost credit that can spiral people into worse debt,” he said.

The Treasury-commissioned study was an initiative kicked off by the former chancellor Philip Hammond in the 2018 budget in an attempt to stop payday lenders ripping off poorer customers.

A Treasury spokesman said: “The chancellor has announced an unprecedented package of support for workers and businesses.”

The spokesman pointed to policies increasing universal credit and tax credit payments by £7bn and said the government was “helping the most vulnerable with their council tax bills through a £500m hardship fund”.