The poverty premium

THE EXTRA COSTS OF BEING POOR

The poverty premium is the extra costs people on low incomes and in poverty pay for essential products and services. Essentials such as energy, through prepayment meters and expensive ‘Standard Variable’ tariffs; loans and credit cards with high interest rates; and insurance that costs more in deprived areas. It costs the average low income household an extra £490 a year, but for more than one in ten of these households it costs at least £780.

Fair By Design’s study of low income households who accessed the services of national poverty charity Turn2us, found that these households were paying a poverty premium equivalent to 14 weeks’ of food shopping (£478). 

The poverty premium is compounded by factors such as digital exclusion; vulnerability e.g. physical and mental health issues; and geography – where someone lives.

Research commissioned by Fair By Design found that people with certain protected characteristics are also more likely to be paying a poverty premium. This is the case even when compared with low income households as a whole, suggesting that the UK marketplace is discriminating against groups of people, albeit indirectly. We already know that some protected characteristics are linked to an increased risk of poverty. As our research shows, the resilience of people with certain protected characteristics is also affected by having to pay a premium for being poor. Intersectionality also plays a large role: the more protected characteristics a person has, the more likely they are to be in poverty – and paying a poverty premium.

The poverty premium is an injustice that affects the 14 million people in the UK who live in poverty. One-fifth of our population, the people with the least, end up paying the most, just to survive.

The poverty premium is something we can all be vulnerable to. Income ‘shocks’ such as redundancy or ill health can affect everyone. It locks people in a cycle of high costs and inadequate income. It means the market isn’t working well for many consumers. We need to redesign our approach to markets and products/services, involving people in decisions made about them.

The poverty premium can be fixed. Regulators, social policymakers, and businesses all have a role to play in designing products and services that work better for everyone.