Belfast Telegraph

Thursday 23 October 2014

Study: Poorest charged 10% premium

A new report has found that someone on a lower income could pay around 19 pounds more a week for essential services than the average consumer

The poorest households are being charged a "premium" of up to 10p more for every £1 on essential goods and services, a report has estimated.

The extra charges cannot always be justified and the Government and regulators must nudge firms towards making costs fairer for consumers, the study by Consumer Futures and the Joseph Rowntree Foundation said.

The Addressing the Poverty Premium report found that paying higher prices for utilities and credit could raise the cost of a minimum household budget by around 10%.

It acknowledged that some customers could be costlier for firms to serve than others, but said that people on low incomes were in a "weak bargaining position" because they had less choice about how they paid for services.

The way firms constructed their products and tariffs meant that people who did not have access to direct debit and online banking ended up paying more, the report said. Some consumers used methods like pre-payment meters that cost them more because they were wary of the high credit costs they would have to pay if they went into debt, the study said.

The report identified some key ways in which low-income families were paying a "premium". They could be paying higher than average utility tariffs, possibly because they were being sent a quarterly bill rather than paying online, or they may be paying over the odds because they had to take out a deal which they did not particularly use, such as a phone deal with a package of add-ons.

Those on lower incomes also tended to have more limited payment methods available to them which restricted their choice, and the high cost of consumer credit was often "much greater than is justifiable" by the additional risk of lending to them, the report argued.

The analysis in the report was based on the costs people were charged for using services such as utilities, phones and the internet and financial services. It assumed that someone on a lower income could end up paying around £19 more a week than the average consumer's weekly estimated household budget of £193. The £19 extra charge was made up of a premium of around £8 added to average utility bills and £11 in surplus credit interest.

Charities have urged ministers to stop "squeezing the purses and wallets of the poorest" after figures released earlier this week showed an increase in absolute child poverty last year in the UK to 3.8 million. The Government has been making efforts to increase access to affordable credit for people on low incomes, with plans to make it easier for credit unions to offer small short-term loans, helping them to rival payday lenders.

Katie Schmuecker, policy and research manager at the Joseph Rowntree Foundation, said: "The poor pay more may be a well-worn phrase, but this report drives home the very real impact of the poverty premium on the living standards of low-income families. Households on low incomes already fall short of achieving what the public think is an acceptable standard of living - the poverty premium further compounds this, risking increased poverty and hardship."

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