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Economic Justice

People in poverty pushed to the edge by the extra costs of insurance, energy and credit

  • New research by Fair by Design reveals that one in five people in poverty in the UK (2.8 million) suffer from extra charging for services such as energy, finance and insurance.
  • More than a quarter of families in poverty are locked into debt through high cost credit.

New research by  Fair by Design, launched today (19/09/18) has found that one in five Britons in poverty (defined as earning under £16,000 a year) are being hit by the Poverty Premium – the extra costs paid by people on low incomes for everyday services like credit, rent to own products, gas and electricity, and insurance.  25-34 years olds, often those with young families, are the most likely to be affected.

The research also found that families in poverty are becoming locked in a cycle of debt just to meet basic day-to-day costs. Over a quarter (27%) of respondents had taken out a high interest loan or used expensive rent-to-own schemes or store cards over the last two years.

More than one in five (21%) respondents said that they had used credit like a payday loan just to pay a bill. A quarter (25%) of those said the high cost of borrowing is affecting their ability to get out of debt.  15% have had to borrow from friends or family to keep up with the payments, whilst the same proportion struggle to pay for household essentials like heating and eating.

The research also found that only 42% of families living in poverty have insurance to protect what they have, compared to 74% of those above the poverty line.  Many of them (12%) say this is because it’s simply too expensive to pay the premium.

The Poverty Premium costs low income households an average of £490 every year[i]. However, low-income households vary in their exposure to different premiums, and the premium could be as much as £750 for some households.

To coincide with this research, Fair by Design has launched a roadmap detailing how it will eradicate the poverty premium. It is asking;

  • Government to set up a wide-ranging inquiry, working with a variety of regulators and businesses, to tackle the poverty premium. This needs to include putting pressure on businesses to create a level playing field for all consumers, assessing their pricing processes and remedying where the poor pay more.
  • Financial Conduct Authority (FCA) to commit to regulating and capping all forms of high cost credit, extortionate bank overdrafts, rent-to-own finance, home-collected credit, catalogue credit, and store cards.
  • Employers to support low income employees vulnerable to the Poverty Premium by providing them with advances on wages (using companies like WageStream) which would protect those whose first port of call might be a payday lender or an expensive overdraft.

[i] Davies, S et al (2016) The Poverty Premium – When low-income households pay more for essential goods and services. Bristol: University of Bristol