Those who put their money into credit unions normally put funds into shares, on which they earn dividends and against which they can then borrow funds. Once they have £1,000 in shares, they can then open an interest-earning deposit account, although only 9 per cent of members have such accounts.

The new 20 per cent DIRT rate on deposit income will, in fact, benefit those who up to now have declared their interest income to the tax authorities, as once it is paid, they will have no further liability. But the Irish League of Credit Unions is anxious that a threshold be set below which the new DIRT would not be deducted, to accommodate the approximately 55 per cent of members who have low income and do not pay tax.

The league objects to the new rule which will oblige unions to report anyone who earns dividends on their shares of more than £500 as "completely inappropriate for a mutual movement".

However, a Government spokesman pointed out that only 1 per cent of credit union shareholders would earn enough in annual dividends to be affected. The league fears the differing rates will encourage members to put their money on deposit rather than into shares.