The poverty premium means the poorest people pay more than more affluent households. Image: Nick Pampoukidis / Unsplash
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While the cost of living crisis is continuing to hit everyone, low-income households are paying £430 per year more on average due to the poverty premium.
One in eight households in Britain experience at least one type of poverty premium, costing each British constituency £4.5 million each year on average, according to the new research from Fair By Design and the University of Bristol.
“People shouldn’t have to pay more for life’s essentials because they are on a low income. Industry, government and regulators need to come together to make sure everyone can access the products and services they need at a price that is fair,” said Martin Coppack, Fair By Design director.
“As families across Britain struggle with the cost of living crisis, taking action to end the poverty premium has never been more urgent. Government intervention to eliminate the poverty premium would put on average £430 back into the pockets of over 3.5 million low-income households without requiring any additional funding from the Treasury.”
For the first time, the campaigners have produced an interactive tool to allow people to see the economic impact of the poverty premium in their local area.
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While poorer households pay £430 more on average, the cost is much higher in some parts of the country. Some households in the north of England and the Midlands are paying up to £541 a year more than more affluent households, as is the case in the Birmingham Hodge Hill constituency.
Despite government promises to level up the country, the north-east of England has the highest proportion of households incurring the poverty premium with almost 15 per cent hit by at least one component of the poverty premium.
The North West and Yorkshire and the Humber follow while the poverty premium hits 13.1 per cent of households in London – the same as Wales. The south-east of England is least affected with the issue impacting 11 per cent of households.
The constituency with the highest proportion of households hit by the poverty premium was Liverpool Walton where just under 20 per cent of households were affected.
Fair by Design has called on government to introduce a new social tariff for low-income consumers who are struggling with energy costs, which surged in April and are set to rise yet again in October. The campaigners also urged industry to stop charging customers for using prepayment meters, which typically cost around £130 a year more than paying by direct debit.
Sara Davies, a senior research fellow at The University of Bristol Personal Finance Research Centre, insisted eliminating the poverty premium could have a big impact on regenerating local areas and put £2.8 million back into the wider economy.
“This research makes it easy to identify where the local focus of poverty premium elimination should be. By addressing these issues, millions of pounds could remain within local economies,” said Davies.
“This money could be spent locally, creating extra jobs and growing local businesses. Or it would ease financial difficulties for low-income households in the area and reduce the burden on local services.”
A HM Treasury spokesperson said the government will give £1,200 of direct payments to eight million families this year to deal with rising energy bills and cost of living pressures.
The spokesperson added: “It’s important that financially excluded people are able to access the products and services they need to get on in life – and that’s why the government has provided Fair4AllFinance with £100m to support their work on financial inclusion – and is piloting the No Interest Loans scheme which will give interest-free loans to almost 17,000 people, helping them to deal with unexpected costs.”
