The Tories and Lib Dems had been highly critical of the proposal, which was published in a consultation paper last month. The Liberal Democrats called it “harsh and insensitive” while the Conservatives accused the government of acting like “loan sharks”.

The emergency loans are given to people on low incomes to afford unexpected expenses. Around £500 million was dispensed by the scheme last year.

“We are absolutely not proposing to charge interest on social fund loans.” Said Ms Usher. "We do propose expanding the way that crisis loans work, to make them more available to more people," She added.

Chris Grayling, the shadow Work and Pensions secretary commented that:

"Gordon Brown keeps criticising the banks for charging excessive rates of interest. But when he thinks no-one is looking, he does exactly the same himself. It makes him look like a loan shark."