Think tank ResPublica has called on the government to introduce a new loan safeguard to help build both lender and consumer confidence and potentially unlock billions in consumer spending.

It is also urging Government to influence state owned banks to act ‘for the greater good’ and lead the sector by adopting this safeguard.

Set for discussion at a House of Commons event this week, the new ResPublica report Risk Waiver: closing the protection gap and easing the flow of credit identifies a new credible and ethical financial safeguard, ‘debt waiver’.

ResPublica said that the ‘debt waiver’ has the ability to overcome this current crisis of confidence following the PPI mis-selling scandal and in doing so address the lack of available credit and the decline in the UK’s economic performance.

Phillip Blond, the paper’s author, said: “A lack of protection has made lenders wary of lending to those who desperately need credit.

“Protection will both increase the demand and unlock the supply of credit that our economy so urgently needs- the two bailed-out banks should be influenced by Government to adopt ‘debt waiver’ – where they lead others will follow.

“Household credit availability is 55% less than in 2008. Although the availability of credit has increased to 65% of its 2008 level this year – demand for loans far exceeds this.

“Similarly, SMEs, the workhorses of the economy, are being denied opportunities for growth.

“Lending to the small business market has dropped by 25% since 2008, and UK loan rejection rates are twice those of France and Germany.”

Blond’s comments were echoed by Heather Wheeler MP who said that despite the government’s attempts to get financial institutions lending again more is needed to be done to increase lenders appetite for risk.

She said: “Across the UK, consumers and businesses are in dire need of credit, and without it innovation and opportunity for growth is stifled.

“Not enough has been done by lenders reacting to government actions to find a solution to lessen credit risk and kick-start the UK economy – I believe introducing a debt-waiver product will do this.”

The new ethical debt-waiver product is set to be launched by global credit protection specialist CUNA Mutual later this year.

Paul Walsh, chief executive officer of CUNA Mutual, said: “The time has arrived for lenders to proactively respond to their consumer’s needs and help them overcome their fears and address this inertia in the lending market.

“Many lenders want to offer a real solution to the ‘protection gap’ that would benefit and protect both them and their customers. We know from experience that the CM Waiver will provide that solution.”