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Keeping an eye on financial inclusion

Carl Packman, Head of Corporate Engagement for Fair by Design’s poverty premium movement, looks at the scale of financial inclusion collated and analysed by the Centre on Household Assets and Savings Management’s (CHASM’s) annual briefing paper

Theresa May in 2016 made a very powerful speech demonstrating her willingness to fight against what she called “burning injustices”. She noted that “if you’re born poor, you will die on average nine years earlier than others […] If you’re one of those families, if you’re just managing, I want to address you directly.”

To her party’s conference that year she also said:

“Where companies are exploiting the failures of the market in which they operate, where consumer choice is inhibited by deliberately complex pricing structures, we must set the market right.”

Recognising the plight of poverty, and the extra costs associated with it, is something that unites the political spectrum. The Fair by Design initiative recognises it’s not easy to solve, but it is focusing on solutions not just words.

Poverty is increasing

The Centre on Household Assets and Savings Management (CHASM)’s 2018 Financial Inclusion Monitoring Briefing Paper, demonstrates the scale of the problem.  It starts by celebrating some positive recent developments including falling unemployment and increased wages for full time employees. However, poverty is increasing, both in and out of work, “with those out of work particularly affected by benefit cuts and delays”.

The report shows that poverty has increased since 2010. In 2016/17, 30 per cent of all children and 16 per cent of all pensioners were living in poverty, while 1.5 million people, including 365,000 children, were destitute at some point during 2017.

Poverty is expensive in the UK. As the concept of the poverty premium illustrates, there are extra costs of being in poverty. The cost of credit, for example, becomes higher if you are obliged to visit an alternative provider like a payday lender for borrowing money. The cost of energy is higher if you are stuck on a costlier tariff, and the costs of insurance increase if you live in a particular area.

Figures in CHASM’s report bear out some of those extra costs. For example in 2014–16, nearly half (47 per cent) of the population had some form of unsecured lending, which can include payday loans and other forms of high cost lending, but is most often credit cards.

In addition to high cost credit from the alternative credit sector (e.g. payday lenders, the rent-to-own sector like Brighthouse), the costs of unarranged overdrafts has been particularly hard for consumers:  whilst one million people took out payday loans in 2017 at least 10 million used an unarranged overdraft.

The report finds that those on the lowest incomes are much more likely to be in arrears on utility bills and credit commitments: 16 per cent of those on the lowest incomes (lowest 10 per cent of incomes) were in arrears in 2012/14 compared with only one per cent of those with the highest incomes (highest 10 per cent of incomes).

One issue for those experiencing the extra costs of being poor is not just how much they spend, but the costs of essential products and services becoming totally unaffordable. From the report we see that only six in ten working-age adults had home contents insurance in 2016–17, and we also know that 60% of those earning £15,000 or less per annum have no contents cover. Of those who did not have it, nearly a third said they could not afford it.

Fair by Design’s plans to eradicate the poverty premium             

In Fair by Design’s recent roadmap, charting how we will get rid of all the extra costs of poverty, we set out plans to get rid of the poverty premium. We call on businesses, including all consumer credit providers, to eradicate the poverty premium from all of their products and services to ensure low income customers aren’t paying more for essentials. Fair by Design want the Financial Conduct Authority (FCA) to broaden its regulation of all forms of high cost credit including caps on those not currently covered: overdrafts, rent-to-own, home-collected credit, catalogue credit, and store cards.

Fair by Design want landlords to ensure every new housing tenant is automatically placed on the cheapest energy tariff, to stop them from paying over the odds on their fuel bills, particularly those unaware of the fuel provider choices which exist, and we want employers to support employees on wage advances to help them to avoid turning to high cost credit lenders.

Find out more about the Fair by Design movement on our website and follow its activities on twitter.