The government announced on Wednesday further plans to help people on low incomes to access mainstream financial services.

It has already earmarked £120m for a Financial Inclusion Fund which will help support initiatives to tackle financial exclusion by those on low incomes.

It said on Wednesday that it planned to spend £20m of that £120m on broader financial inclusion objectives including stimulating demand for mainstream financial services.

The government also said it wanted low income consumers to be able to access affordable forms of credit rather than pay interest rates of more than 100 per cent.

To help this, the financial inclusion fund will be used to establish a growth fund of £36m which would support those lenders which are offering alternative affordable credit. Successful bidders to this fund will be announced in June.

Other changes announced today include allowing credit unions - which offer affordable loans to poorer consumers - being able to increase the maximum rate of interest which they charge from 1 per cent a month to 2 per cent a month.

The government also announced plans to encourage mainstream banks to lend to those on low incomes.

In future the government will set up a scheme whereby under some circumstances lenders can apply for repayment of arrears through deduction from benefits if a consumer has fallen into arrears.

It hopes this will take out some of the risks for the banks in lending to low income groups.

The government also indicated it wanted to encourage banks to continue to make it easier for consumers to open a bank account.

Separately the government reaffirmed its aim of making electronic payments across the banking system faster. It re-iterated that it could legislate if there has not been significant improvement in this area.