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Today Fair By Design is launching its new film featuring people with lived experience of the poverty premium in payments.

Everyday millions of payments are made in the UK, from online transactions to cash in shops. They are an essential part of life today. However, some payment methods create a poverty premium, meaning people are charged more for the way they spend their own money.


Fair By Design’s latest lived experience film highlights this injustice through three stories looking at energy, car insurance and access to cash. These stories show that people in poverty are charged more for essentials because of the way they pay for them.  

The film builds on work on the poverty premium in payments, and how people in poverty can access fair and flexible methods of payment. You can read a full paper on the issue here. 

Today Ofgem, the energy regulator, announced a lasting solution to eliminate the extra costs for paying for energy using a prepayment meter. This announcement is a big win and follows years of campaigning for this poverty premium to be eliminated.

Ofgem also said it had not made a final decision on the extra costs for people who pay for energy when they receive their bill. It plans to continue to explore how to tackle this issue and will publish a consultation by the end of the year. If implemented, a reduction or end to this extra cost would happen from April 2025.

Maria Booker, Head of Policy, Fair By Design, said:

“This is a big win for people on low incomes. Today’s announcement introduces a lasting solution. We welcome recognition from the regulator that people on low incomes should not pay more for their energy.

“We also welcome Ofgem’s intention to bring down the premium for paying on receipt of bill, even if not as soon as we had hoped.

“But the extra cost for those who pay when they receive their bill still exists. We want to see this completely eliminated and will continue to push hard for this change to happen.”

Read the full release on Fair By Design’s website.

The pricing and tariffs are over complicated on purpose. Energy companies have far too much power for an essential service.” – Lived experience focus group participant, April 2023.

The Energy Security and Net Zero (ESNZ) Committee has launched an inquiry to investigate the process of billing customers for their gas and electricity, to look at whether the rules on charging for energy are fair for all. The Committee wants to understand how a social tariff should be implemented to address inequalities in billing.  

In our consultation response, we set out a wide range of policy solutions to create a fairer domestic energy market, emphasising the need for Ofgem and the Government to prioritise the interests of low-income consumers. This includes: 

  • Introducing an energy social tariff as soon as possible. There is an ongoing affordability crisis in energy. Prices are forecast to remain significantly above their pre-crisis levels for many years to come. The Government needs to urgently honour its commitment to consult on introducing long-term bill support for those least able to afford their energy.
  • Reforming standing charges as they are too high. Ofgem should look to recover the fixed costs of the energy system in a fairer way. 
  • We would like to see an end to premiums for different methods of payment, particularly when those methods of payment are disproportionately used by those on a low income (“poverty premiums”). 
  • We would also like to see regional differences in energy prices abolished. People on low incomes have told us that they want the energy system to be less complicated and fairer.  

Our full consultation response notes in further detail our policy asks.   

Fair By Design are part of a coalition of Charities and groups calling on the Government to re-commit to the policy as part of a permanent solution for fuel poverty in the UK.

New analysis by Age UK has revealed that 2.2 million households would not be living in fuel poverty this winter – a reduction of around 65% – if the Government had implemented an energy social tariff to help the most vulnerable energy users in society. 

Despite repeated promises from the Government to consult on an energy social tariff they have failed to follow through on this commitment, letting down millions of people in fuel poverty who are still in desperate need of support. 

A Coalition of Charities, Age UK, Scope, Fair By Design, Mencap, MND Association and Sense, warn that the cost of living crisis is still adding huge pressures to household finances, with millions facing the dilemma of how they’re going to pay their energy bills this year. 

Read the rest of this release on Fair By Design’s website.

The Labour Party has published its Financial Services Plan, a blueprint laying out the party’s plans for financial services if it wins the next general elections. The plan mentions poverty premiums as a consequence of lack of access to financial services and pledges to develop a national financial inclusion strategy, something Fair By Design have long called for.

The plan also includes commitments in other areas Fair By Design campaigns on, such as flexibility in payments; access to cash; exploring the need for alternative sources of credit for households, such as financing from community development finance institutions; and regulating Buy Now Pay Later. 

Martin Coppack, Director, Fair By Design, said:

“I’m incredibly pleased to see that the Labour Party has listened to Fair By Design and our partners’ calls for a national financial inclusion strategy. A strategy would give any party who wins the election the chance to make meaningful change to the lives millions of people who are excluded from financial services in the UK, or who are charged more for being poor.

“Labour’s plan acknowledges the link between financial exclusion and poverty premiums, which is a great start. Any future strategy will need a clear commitment to end poverty premiums.

“I call on all parties to make tackling the poverty premium part of their manifestos.”

Read Fair By Design’s election manifesto.

By Martin Coppack, Director, Fair By Design

It’s not every day that we see the financial services market reacting so strongly to what the regulator says on a relatively “niche” area, but one that affects many people: premium finance.

Premium finance is the loan and interest that insurance providers charge you if you can’t afford to pay for your car insurance all in one go, and pay monthly instead. It’s also used with other financial products.

Authority (FCA) is sending strong signals that it will tackle premium finance, with its Director of General Insurance Matthew Brewis effectively calling it a poverty premium this week:

“It is a tax on being poor. Those who are paying monthly are subsidising those who can afford to pay annually.”

It’s not the first time that Matthew Brewis has talked about the need for action on premium finance being used to charge people more for paying monthly. When we launched our latest report on insurance poverty premiums with the Social Market Foundation (SMF) last spring, Matthew said that the FCA had been engaging CEOs on premium finance. He said that the FCA expected the prices charged for paying monthly to be proportionate with the credit risk for the cost of providing that service. Matthew questioned why some consumers experienced such high rates, saying it was not “really apparent why’s it’s appropriate for APRs at 30% or above charged to consumers”. You can watch him here:


The Association of British Insurers, in turn, said they agreed on the need to collaborate with Treasury and the FCA on some of the issues identified in our report. 

The Shadow City Minister Tulip Siddiqi MP spoke at the same launch event and agreed action was urgently needed. Tulip pledged to make the case for any incoming Labour Government to prioritise tackling how expensive it is for people on low incomes who pay monthly for their insurance: “Too often it’s just more expensive to be poor, which is not how we want the country to be run”.   

What is the impact of premium finance on people on low incomes?

Our latest research with the SMF shows that over half of people in poverty are finding it difficult to pay for their insurance during the cost-of-living crisis – leading some to give up insurance as they prioritise food and energy bills.  

This research described how paying monthly for car insurance can cost £160 more a year than paying everything upfront. These extra costs have a knock-on effect on take-up amongst people on low incomes. Zahada, who has lived experience of this issue, explains how she had to pay monthly for her daughter’s car insurance because they didn’t have all the money to pay upfront. That has cost them an extra 10%, or around £200. You can hear directly from her in this video: 

We want to see action 

We have an opportunity to end this poverty premium for good. There are strong signals from the regulator and, we believe, increasing willingness from industry to collaborate. In an election year, we are calling for political parties to make addressing the poverty premium part of their commitments. We want to see a UK where everyone pays a fair price for essential services and where it doesn’t cost more to be poor. 

Our response focuses on ensuring that households on low incomes do not incur a poverty premium based on the way they pay for their energy.


In July 2023, the Government brought in temporary measures to end the premium that pre-payment meter (PPM) customers paid for their energy, whilst tasking Ofgem with finding a way of ending the PPM premium permanently when the Energy Price Guarantee comes to an end in April 2024. This consultation is part of that process.  

Ofgem has taken the opportunity to look at the premium paid by customers who pay on receipt of bill (known as standard credit) as well as the premium paid by PPM customers. 

Our response

We want to see the poverty premium in energy ended. In its consultation, Ofgem set out three options, and we support option three. Option three not only makes having a pre-payment meter the cheapest method of payment, but also significantly reduces the standard credit premium (option 3 would reduce the standard credit premium to £62).  

We still believe a standard credit premium of £62 is too high but recognise that it is significantly better than both other options included in the consultation. 

Our full consultation response notes in further detail our policy asks.  

Ofgem’s consultation on additional debt related costs aims to inform policy decisions about whether they should adjust the energy price cap to better deal with energy debt and arrears (currently standing at £2.6bn).

The default tariff cap (‘the cap’) came into force on 1 January 2019. The cap ensures that default tariff customers pay a fair price for their energy that reflects the efficient underlying cost to supply that energy.

Given growing levels of energy debt Ofgem has been carefully monitoring the evolution of debt-related costs relative to price cap allowances.

Ofgem has seen evidence of a gap between costs and the existing cap allowance in cap period 8-10a (April 2022 – June 2023). Ofgem is therefore issuing a policy consultation on whether they should adjust the price cap to account for these deviations between costs and allowance. Ofgem considers that it is in the interest of customers to allow suppliers to recover efficiently incurred costs, as suppliers going out of business ultimately increases costs for all consumers.

Fair By Design’s response to this consultation is driven by the desire to get rid of premiums that those on low incomes pay due to how they pay for their energy.

You can read our full consultation response here. 

  • 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. 
New research from Fair By Design (FBD), and The University of Bristol reveals for the first time the  economic impact of the poverty premium at a local level across Britain. The poverty premium is the extra costs people on low incomes and in poverty pay for essential products and services. Examples include using pre-payment meters for gas and electricity, paying more for home and car insurance due to where you live, and using high interest loans and credit cards.

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%).

Martin Coppack, Director, Fair By Design, said:  

“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.”    

A new report from the Institute and Faculty of Actuaries (IFoA) and Fair By Design (FBD) details how those who need insurance the most are often priced out or left out, leaving them unable to access the protection insurance provides. “The hidden risks of being poor: the poverty premium in insurance” exposes the difficulties faced by vulnerable and low income people trying to access insurance and provides practical solutions to ensure everyone has a fair chance of being able to protect themselves and their families.

The research, which includes testimony from people in poverty, found that vulnerable and low income consumers are increasingly quoted higher premiums for insurance, or are refused cover altogether.  This can be due to a range of factors, many of which are often outside someone’s control, such as where they can afford to live, or their medical history. One of the main drivers of the ‘poverty premium’ in insurance is a shift away from a pooling of risk across many different people towards more granular pricing based on an individual’s specific risk factors. This has been made increasingly possible by advances in technology and increasing amounts of data that can be used by insurers.

Consumers and their advocates consulted for the report maintain that they are not in a position to assess whether a high or unaffordable premium, or an insurer’s decision not to offer cover at all, is reasonable or fair. This leaves them in a lose-lose situation – unable to demonstrate a market failure to the government and regulators, and unable to take any legal action.

Questions were also raised about the interaction between the Equality Act and insurance pricing. People with certain protected characteristics such as race, sex (for example, in the case of single mothers) and disability were less likely to hold any insurance, indicating a level of exclusion from the market.

A number of solutions were recommended by stakeholders, including the creation of reinsurance schemes similar to Flood Re and auto-enrolment through employers. Some also called for the end of the monthly payment premium that exists for certain types of insurance.

The IFoA and FBD recommend that:

  • The Government should set out a minimum level of protection needed by all, including low income families, for them to remain financially resilient to risks and unexpected shocks – such as Covid-19.
  • The Government should also look at how it can facilitate the delivery of a minimum level of protection, through policy interventions such as extending the Flood Re model of insurance, to cover consumers who are priced out or excluded from the market.
  • The FCA should support government in this work by undertaking a study into the regulatory outcomes the market is currently delivering for low-income consumers. This study should also consider the interaction between insurance pricing and the Equality Act. This is in line with the recommendation of the Treasury Select Committee in its inquiry into consumers’ access to financial services.
  • The Government should work with the FCA and industry to understand the policy changes needed to support and incentivise the sector to develop solutions to address the poverty premium.

Martin Coppack, Director at Fair By Design, said:

We are all now encouraged to look to the market to protect ourselves and our families from the inevitable ups and downs of life. But what happens if you can’t move to a different postcode – one seen as less risky by insurers?  What happens if you have had cancer or another illness in the past? We know that a life or income shock is one of the biggest reasons people get into debt, yet those who can least afford a shock to their finances are being priced out or left out.

“As companies become more able to individually price risk and move away from more mutual forms of pricing we are being left with a two-tier market – one that works for the most healthy and wealthy in society.

“The poverty premium means that households often go without insurance, and they often have to resort to other more costly ways to protect themselves such as credit.

“To level up our communities, regulators, policymakers and industry need to work together to make sure people on low incomes can access the protection they need at a price they can afford.”

David Heath, Chair, IFoA Policy Advisory Group said:

“As the insurance industry has evolved, pricing for individual risk has had both positive and negative impacts. While lower risk customers have enjoyed lower premiums, vulnerable and low-income households are often considered high risk.  These customers are being offered higher premiums, which may be unaffordable. In some cases, they are being refused cover altogether.

“The Covid-19 pandemic has disproportionately affected low-income households and drawn attention to their limited financial resilience in the face of job losses and economic hardship. At a time when adequate protection is more important than ever, this group is facing the most difficulty in securing affordable insurance that would provide a much-needed safety net.

“As Government and industry consider how best to address the challenges highlighted by the pandemic, we would urge them to consider the creation of a more sustainable social and economic system which provides everyone with accessible and affordable insurance. Boosting the resilience of low-income households has the potential to reduce the costs of state welfare while allowing these households to pay bills and spend on goods and services, benefitting their wellbeing and the economy