Key markets for utilities and financial services are failing those on the lowest incomes, says a new report. It calculates that higher prices for utilities and credit – the 'poverty premium' – can raise the cost of a minimum household budget by around 10 per cent.
- Four categories of poverty premium are highlighted: (1) higher-than-average utility tariffs because of the payment method or being on a ‘sub-optimal’ deal; (2) paying more per unit of consumption because of being a low user, especially for telecommunications; (3) paying more because of financial or digital exclusion, such as lack of access to direct debit; and (4) high interest on consumer credit, often much more than justified by the additional lending risk involved.
- In order to reach a minimum acceptable standard of living, households on average need to spend between a fifth and a third of all outgoings on utilities and on buying larger items on credit. Paying higher prices for utilities and credit can raise the cost of a minimum household budget by around 10 per cent.
- This 10p in the pound premium can contribute significantly to poverty and hardship. For example, for a single person on a low wage (a third above the minimum wage level), it can make the difference between being £9 a week short and being £34 a week short of meeting their minimum income needs.
- The report says all regulators should look closely at whether low-income households need extra help to thrive in the markets concerned. They should investigate whether products used disproportionately by households on low incomes are being fairly priced relative to other products. And they should not assume that help to become 'active consumers' will provide enough protection for disadvantaged groups.
Source: Donald Hirsch, Addressing the Poverty Premium: Approaches to Regulation, Consumer Futures
Links: Report | Consumer Futures press release