Credit card companies would be forced to write off billions of pounds in long-term customer debts if Labour got into power under a policy to be unveiled at the party’s conference.
John McDonnell, the shadow chancellor, will propose capping the amount of money lenders can charge in interest so that no one has to pay back more than double what they borrowed.
He will say the policy will help three million credit card holders who are “trapped by their debt”.
But with £14 billion owed by those classed as being in “persistent debt”, the policy raises questions over whether the cost of the policy would end up being passed onto other borrowers.
Mr McDonnell will use his speech at the Labour Party conference to accuse the Government of creating a “debt crisis”.
The average credit card debt owed by those in persistent debt – classed as people who have paid more interest charges and fees than their original borrowing – is £3,464 per person.
Mr McDonnell proposes a hard cap on credit card repayments of 100 per cent of borrowing, meaning no one would have to pay back more than double what they had borrowed.
The Financial Conduct Authority has estimated that lenders would lose up to £1.3 billion per year as a result.