Poverty premium: High cost of being poor in UK

UK’s low-income families hardest hit by rising prices, says Jane Bradley

BRITAIN’S poorest households are paying 10p in every £1 more for everyday goods and services, a report has revealed.

A study found that issues which affect low income families – such as an inability to pay through direct debit or online, a need for credit and utilising pre- payment meters for utility bills – mean that they are harder hit by rising prices than the majority of consumers.

Although it admitted that some consumers can be “costlier to serve” than others, the report, compiled by the Joseph Rowntree Foundation and Consumer Futures, found extra charges applied were not always justified, and called for regulators and the government to focus on making firms drive down costs for these consumers, reflect those efficiencies in fairer prices and help all consumers access the best value deals in their markets.

“The poor pay more may be a well-worn phrase, but this rep­ort drives home the very real impact of the poverty premium on the living standards of low income families,” said Katie Schmuecker, policy and research manager at the Joseph Rowntree Foundation. “Households on low incomes already fall short of achieving what the public think is an acceptable standard of living – the poverty premium further compounds this, risking increased poverty and hardship.”

Low income households usually need to spend between a fifth and a third of all outgoings on utilities and on buying larger items that they are most likely to purchase on credit – raising the cost of a minimum household budget by around 10 per cent.

For a single person on a low wage – a third above the minimum wage level – the extra costs can make the difference between being £9 a week short and being £34 a week short of meeting their needs, the report said.

“Consumers who are poor or vulnerable may always be with us, but we can do more to make sure that markets do not make their position worse,” said Mike O’Connor, chief executive of Consumer Futures. “The extent to which essential services meet the needs of low-income consumers is a basic test of the success or failure of markets. It is a test that has been failed too often and for far too long.”

He added: “The cost of many essentials such as energy and water are likely to rise and whilst we hope for a tide of economic growth which will lift all, poverty and vulnerability is not going to go away and indeed many people who are not seen as ‘poor’ will struggle to meet household bills.”

The report laid out three possible ways in which government can intervene to improve things for low income households: by ensuring fair trading and promoting competition; intervening in product and pricing structures or by offering direct help to consumers in vulnerable positions, either in using the market or compensating them for its outcomes.

O’Connor added: “These can be complex issues and regulators and government lack a common framework to understand how the poverty premium manifests itself and what they can do about it.”