Fair By Design has written to the Chancellor, Jeremy Hunt, urging him to introduce a ‘Help to Repay’ scheme to provide repayment matching and debt relief for people with unaffordable energy arrears.
The letter features new research from National Debtline showing one in four people in energy debt (24%) are unable to repay. A fifth (21%) of people in energy arrears have also been threatened with enforcement action by their supplier.
The ‘Help to Repay’ campaign calls for targeted support for people who have faced difficulty paying energy bills and have fallen into payment arrears during the energy crisis. The letter to the Chancellor comes as energy debt hit its highest-ever level of £2.6 billion, according to the energy regulator Ofgem.
Martin Coppack, Director, Fair By Design, said:
“It is very saddening to see that one in four people in energy debt are unable to repay it. It is clear we need to introduce a ‘Help to Repay’ scheme to support people, so they don’t fall into further problem debt or get disconnected altogether leaving them with no heating this winter.
“The Government must help people with their energy bills today and in the future. It must introduce a Help to Repay scheme to support people today, and also progress longer-term support in the form of a social tariff.”
- One in eight households in Britain experience at least one type of poverty premium.
- On average the poverty premium costs £430 per year for a low-income household.
- Each British constituency loses £4.5 million a year to the poverty premium.
- The North East of England has the highest proportion (14.7%) of households incurring the poverty premium.
- An interactive map of the findings across British constituencies gives information on every constituency
- Read the full report ‘The Cost of Living and Levelling Up: Why the poverty premium matters for local economies
The research shows that one in eight households experience at least one type of poverty premium. This costs each parliamentary constituency £4.5 million per year, equating to a total loss of £2.8 billion from the national economy.
The North East of England has the highest proportion of households incurring the poverty premium (14.7%), followed by the North West (13.4%), Yorkshire and the Humber (13.4%), London (13.1%) and Wales (13.1%). The South East of England has the lowest proportion of households experiencing the poverty premium (11%).
“As families across Britain struggle with the sharp rise in the cost of living, taking action to end the poverty premium has never been more important.”
“Tackling the poverty premium is an easy way for the government to put money back into people’s pockets and it wouldn’t require any additional money from the Treasury.”
“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.”
“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.”
Sara Davies, Senior Research Fellow, The University of Bristol Personal Finance Research Centre, said:
“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. 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.”
The Poverty Premium can sometimes come over as an ethereal concept, so it’s the concrete examples that really bring it alive. These are the ones where it’s clear that the people impacted are being driven into yet more poverty because of it. The way the Poverty Premium impacts on them is clearly an injustice. These concerns hit me squarely when reading the February 2019 column by Michelle Edwards in independent local newspaper, the Waltham Forest Echo. Edwards is a campaigning journalist and a Marlowe Road Estate resident in the London Borough of Waltham Forest. Her piece on the newly completed affordable housing block on the estate as part of its regeneration programme raises a particular concern for those residents in relation to their energy provision.
Energy costs for people in poverty are the biggest driver of the Premium, so when we saw her piece we thought it was really important to highlight it as a part of our involvement in the APPG on Poverty Inquiry into the Poverty Premium.
Edwards told me “All the new and existing tenants moved into the block as part of the regeneration development were given an eleven-page Residential Heat Supply Agreement for their heating and hot water.” The dictated terms in the Agreement for their method of payment is a pay-as-you-go prepayment meter. In her words, “Having a prepayment meter almost always means paying more than you need to for energy bills. Not only is the unit price for energy more expensive with a prepayment meter, but the cheapest tariffs offered by energy suppliers are usually not made available for prepayment customers. The council may at its own discretion vary the energy tariff rates for the supply of energy at any time. As it stands, the meter is the only option available to residents”.
According to the piece, payments for the prepayment meter are managed by a third party called EEMonitor. Of the residents she spoke with each had reported problems with their meter. “Apparently the top-ups disappear at an astonishing rate.” One tenant told her he moved in on 12th December 2018 to find his meter was already showing a reading of minus £5. Apparently, the construction workers had left the heating on. Up to 20 January, the tenant had put £60 on the meter. As a disabled occupant he can only afford to turn his heating on for one hour a day. In another of her examples for a similar period, a household had spent £70. The children of that household were told to cut down their showers and only turn the heating on when absolutely necessary. A third resident she met required consoling in the foyer. His mother has a medical condition that affects her bones. In order to keep warm, she has to stand up against the radiator.
This is the stark reality of how people are being locked into extra charges for their energy. There are many more across the UK. There must be a better way to support poor and vulnerable communities to enable them to make ends meet rather than locking them into yet more hardship. We hope the APPG on Poverty Inquiry into the Poverty Premium report makes a real difference to those on the ground who, like the Marlowe Road residents, are struggling to keep their heads above water. It’s time for action.
Lucie Russell
Fair by Design is a movement dedicated to reshaping essential services, like energy, finance and insurance, so they don’t cost more if you’re poor. People in poverty pay more for energy, finance and insurance than those on higher incomes. This is the Poverty Premium.
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.
