‘Poverty premium’ forces poor to pay 10% more

PEOPLE living in poverty pay around 10 per cent more than average for essential goods and services – a “poverty premium” which can push people on low incomes into crisis, a report has warned.

Citizens Advice Scotland’s Poverty Premium report found that people with low incomes end up spending more on services such as metered utilities because they are unable to take advantage of cheaper pay in advance deals or direct debit discounts across a range of services and utilities.

The study, which analysed the experience of people who have turned to Citizens Advice Scotland for help, warned that a lack of internet access or a landline telephone creates extra costs and more barriers for clients trying to contact both public and private sector service providers, which are supposed to help vulnerable people in times of need.

Meanwhile, low income households are paying up to £112 a year more for their energy due to a lack of ability to take advantage of switching or finding cheaper tariffs.

The report said: “When the poverty premium impacts people on very marginal incomes it can leave them destitute and in need of emergency assistance such as help from food banks. The poverty premium does not just make life more expensive for the financially less well off, it often pushes them over the edge and into crisis.”

The investigation warned that people in poverty are more likely to use pay-as-you-go options for mobile phones, which tend to be higher per unit than those for customers on contracts, adding to costs.

Around a fifth of all households in Scotland lack an internet connection, with the lowest income groups least likely to have one.

Meanwhile, low-income households are more likely than others to use pre-payment meters (PPM) for their energy supply. Despite action by energy regulator Ofgem to address price discrimination against PPM users, who were paying inflated costs far above the additional costs of supplying them, a difference still remains as meter customers are less likely to be able to find – and switch to – the best tariff.

The study warned that even if poorer households were able to carry out research on lower tariffs, they would often still be unable to take advantage of them because of a lack of basic banking facilities.

The report said: “The market relies on consumers having the ability to research tariffs and identify and secure the best deals. But access to that information is heavily dependent on internet access.”

The proportion of low-income households without bank accounts has fallen sharply, from nearly a quarter in the late 1990s to just five per cent a decade later as basic bank accounts were developed to include ‘unbanked’ consumers. However, the study found that those without access to banking services, or only very basic services, may face additional charges for making simple financial transactions.

Norman Kerr, director of Energy Action Scotland, said: “This is something which has been highlighted to us by our members. The regulator has taken action to cut the discrepancy, but it still exists.”

“When you are talking about access to the internet it often means smartphones and even those with a smartphone may not have the £30 a week to be able to access the internet to browse price comparison websites.

“Also, a lot of cheaper tariffs require things such as bank account for direct debits and things like paperless billing, which means again, people need access to the internet.”