The government has revealed it is to carry out research into the potential impact of introducing legislation to cap the cost of credit.

While this may help lower the level of credit card debt by limiting the amount that may be charged, there may also be potential pitfalls, such as a restriction on borrowing for many people, leading to exclusion from the mainstream market and therefore driving such consumers towards high-cost and often illegal lenders.

Explaining the reasoning behind the research, consumer minister Ed Davey said: "We know that intervening in the high cost credit market carries risks that we will make things worse for those we are trying to help. We do not want to force people into the arms of the loan sharks so we need robust evidence of what the impact of this proposal might be."

The outcome of the research could therefore decide what – if any – controls the government imposes by law.

Alongside the research will be a new service to co-ordinate debt advice that the Money Advice Service will help formulate, financial secretary to the Treasury Mark Hoban revealed.

Responding to the news, financial services expert at Consumer Focus Marie Burton welcomed the plan to cap card rates, but said "more is needed" to deal with debt problems.

She said nobody should be allowed to take out more than four payday loans in a year, as such regular borrowing would be a sign of deeper financial problems that require action through the provision of debt advice.

Ms Burton argued the widespread use of such credit underlines the need for banks to offer better deals and for there to be more alternatives available through credit unions and post office banking.
 

The level of IVA help needed in the UK may rise as fewer people are able to get into work or obtain better-paid jobs to help pay off spiralling debts.

Evidence that this situation may be emerging has come from recent jobs data suggesting there has been a slowdown in the growth of UK employment.

The latest figures on the subject were produced today (July 18th) by the Bank of Scotland, revealing Scottish recruitment levels are still rising, but not as fast as in recent months.

Its Labour Market Barometer reading was still a positive 55.2 in June, but this was down from 56.5 in May.

Chief economist at the bank Donald MacRae said: “The Scottish labour market improved in June, albeit at a slower rate than in previous months, providing further evidence of a slowing of the economy in quarter two of this year.”

He added: “The rates of increase in vacancies available to both permanent and temporary workers were the lowest in five and nine months respectively.”

The joblessness rate is higher in the UK overall than in Scotland, the bank’s figures noted.

With this being the case, some people in England and Wales could benefit from debt help or even in individual arrangements, as this may mean it is harder for many to find the job they need to help earn their way out of debt.

The most recent national data was the Office for National Statistics quarterly bulletin on July 11th, which showed that in the three months to May the number out of work dropped by 26,000 to 2.45 million.

However, this was down on the 88,000 dip in the three months to April, suggesting a wider slowdown in job creation.