Reading could be chosen by the Ministry of Defence as a location to build up to 32 new affordable homes for Gurkha veterans.

The town is among six possible sites for the £960,000 homes.

The money is coming from a £40million pot for Veterans Accommodation funded by the fines banks were issued after causing the economic meltdown in 2008 triggered by irresponsible lending.

Anna Soubry, Minister for Defence Personnel, Welfare and Veterans, said: “The Gurkhas hold a special place in the hearts of the British people – this year, we mark the bicentenary of Gurkha service in the British Army. We are very grateful to Jackie Doyle-Price MP for her excellent report.

“The work we’re doing to implement its positive recommendations will set the scene for the next chapter in the UK’s close and enduring relationship with the Gurkhas. In turn, they will further cement the strong bonds between the UK and Nepal.”

A spokesperson for the Gurkha Welfare Trust said: “The Gurkha Welfare Trust is committed to supporting Gurkha ex-servicemen and their widows to live out their lives with dignity. The recently announced Libor funding is a welcome contribution to our work.”

The housing money is in addition to the £5m funding to be paid to the Gurkha Welfare Trust over the next five years, which was announced in the Autumn Statement. Through the Trust’s delivery arm in Nepal, the money will be used for healthcare provision and wider social support services for Gurkha veterans.

The Government has also decided to establish a scheme to compensate the small number of Gurkhas who were discharged as a result of marrying a non-Nepali.

Swindon and Salisbury in Wiltshire and Aldershot, Farnborough, Basingstoke, all in Hampshire, are the other possible locations for the affordable homes.