Poorest in society pay extra ‘poverty premium’ on everyday items, study finds

People on low incomes are paying hundreds of pounds more for essentials than those who are better off because of an extra “poverty premium”, new research has found. 

A study of 1,000 low-income households by charity Turn2us found those already struggling were paying an extra £478 a year for everyday items like energy, credit and insurance. This is equivalent to three months’ worth of food, according to the research.

The poorest in society often pay over the odds due to restricted access to financial products and the inability to buy in bulk. This means those who are richer are spending less to access the exact same services. 

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Martin Coppack, director at Fair By Design, which collaborated on the study, said the added costs were making it difficult for people to get by. 

“It isn’t right that the people with the least, are paying more for essentials like heating their homes and insuring their car. The poverty premium pulls people under and makes it hard for them to stay afloat,” he said. 

Car insurance was the largest contributor to the poverty premium, with those in deprived areas often having to pay more. 

Additional charges for paying monthly instead of annually can also mean hundreds of pounds in extra expenses. 

Credit was another contributor to the poverty premium, with those on low incomes paying almost £200 more a year for sub-prime credit cards and £500 extra for personal loans. 

Jamie Grier, director of External Affairs and Income Generation at Turn2us, said the poverty premium was “inherently unfair”. 

“The poverty premium is an inherently unfair penalty for people struggling with money, and it only exacerbates the difficulties of those of us who are managing on a low income,” he said 

“This vicious cycle locks people into high costs, debt and living without the essentials many of us take for granted.” 

According to the research, which was done in collaboration with Bristol University, the poverty premium affects people from all walks of life differently. 

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Those under the age of 35 were more likely to struggle with the cost of owning a car, while people over 65 suffered from digital exclusion and finding it hard to switch services online. 

Low-income families with children, on the other hand, were more likely to use expensive forms of credit to buy household items like washing machines and fridge freezers. 

Coppack said tighter regulation was needed to help stamp out the poverty premium. 

“It doesn’t have to be this way. We’ve seen the positive impact that regulation, such as setting price caps, has had on reducing the poverty premium in energy and high cost credit,” he added. 

“Regulators should now work together to find solutions for people struggling across all markets. And by eliminating the poverty premium, we can make our society fairer for all.”

Have you been affected by the economic impact of the coronavirus pandemic? The Big Issue is committed to supporting its readers and find ways to help people stay in their jobs and in their homes through our Ride Out Recession Alliance. Send your stories and ideas to rora@bigissue.com to help us support those who need it most.