Labour is to announce plans for a broad cap on the total interest anyone can pay to a credit card company, potentially helping some three million Britons trapped in a debt spiral.
Shadow chancellor John McDonnell will unveil the policy at his party’s conference on Monday, claiming soaring household debt is threatening to derail the economy.
He will point to official statistics suggesting it reached staggering record levels over £1.8tn last year, arguing his policy would help credit card holders who owe some £14bn between them.
The bold policy to help hard up families comes as Labour strikes a more confident pose in Brighton, where the party is holding one of its biggest ever conferences attended by some 13,000 delegates.
It also marks a concerted drive to attack potentially harmful business practices, with Diane Abbott also blaming deregulation, privatisation and outsourcing for the Grenfell fire disaster.
Under Labour’s plans for the credit card debt interest cap, the Financial Conduct Authority would introduce a total cost cap to ensure nobody pays back in fees or interest payments more than the total amount of their original borrowing.
Similar rules already apply to payday loans, with Mr McDonnell set to say: “I am calling upon the Government to act now to apply the same rules on payday loans to credit card debt.
“It means that no-one will ever pay more in interest than their original loan.
“If the Tories refuse to act, I can announce today that the next Labour government will amend the law.”
While much of the political debate over the last seven years has focused on national debt, with a laser-like focus on deficit reduction, household debt has been mushrooming.
Since 2012 UK households have built a debt mountain, amassing it at a trajectory that puts the ratio of household debt to GDP heading back towards the peak seen in the boom years before the financial crash.
Between March 2012 and March 2017 there has been an inflation adjusted increase in household debt of 7.3 per cent, compared to a growth in wages as low as 0.7 per cent.
Yet household spending has continued to prop up the economy over the last five years, with a growing number of families turning to credit to buy essential items.
Fears of a dangerous new consumer-borrowing binge were raised by the Bank of England earlier this year when official figures showed another £1.7bn in credit card and personal loans were handed out in a single month.
Experts have warned that as levels of personal debt grow, demand in the economy could fall – because people will stop buying to pay off debt – business revenues could then fall in turn, pushing the economy towards recession.
Labour scored a victory when it helped push the Government towards changes in the law to cap interest rates charged to payday loans, on the back of public anger about firms potentially taking advantage of low income families.
Shadow Home Secretary Ms Abbott also hit out at the private sector when she said on the conference stage on Sunday that the fire at Grenfell Tower was a “direct consequence” of “deregulation of fire standards and inspection, privatisation and outsourcing.”
In his speech Mr McDonnell also warned that Britain must meet the challenges posed by the ‘fourth industrial revolution’, the huge expansion in the use of technology, warning that many jobs we currently do will be automated by the middle of the century.
He will set out plans to establish a Strategic Investment Board to channel funding into the new technologies and ensure they are harnessed by the UK.