Local authorities should offer staff low interest loans that could be paid back through their payroll system, according to a new report by ResPublica.
The report, published by the think tank, reveals that poor credit ratings are disproportionally concentrated in the most deprived communities. Blackpool has the worst credit score in the UK at just 312.54, with 143 local authority districts having a credit score below the median of 353.
It calls on local authorities to take a place-based approach to improving the credit scores of their residents and initiate salary-linked lending schemes.
It found that moving just 5% of the UK’s current consumer debt from the most expensive loans to salary-linked lending would reduce debt servicing costs by around £2bn.
Phillip Blond, director of ResPublica, said: ‘Traditional high street banks have reigned in lending to those on low and middle incomes. What this means is when a personal crisis happens, those with little or no money are forced to turn to unscrupulous companies, who use grossly inflated interest rates, with an APR as high as 1,200%.
‘We describe the phenomenon as the poverty premium, where those who are least able to pay are charged eye-watering interest rates for credit.’