The ‘poverty premium’: a pernicious double whammy

The proposed new poverty measure released this week by the Social Metrics Commission showed that whether or not you’re in poverty is determined by your income and your costs: not having enough resources to meet your essential costs is a defining feature of poverty. We know there are millions in the UK who are restricted in this way every day – having to go without. But compounding this is the ‘poverty premium’ – the additional costs associated with being poor that exert even more pressure on families who are already struggling. This injustice is the focus of a new campaign from Fair By Design – launched today – with an admirable and ambitious aim of ending the poverty premium once and for all.

The poverty premium is pervasive for many people on low incomes. Fair By Design has illustrated this clearly by looking at a ‘day in a life’ of a single parent of two children. This family will experience the poverty premium at many points:

  • A poor credit history and no savings mean that at crunch points – like when the fridge breaks – a rent-to-own shop offers a solution which is affordable in the short term but much more expensive overall than if bought outright. (End Child Poverty has done some important campaigning on this issue).
  • Living in what insurance companies consider a more risky area means that car insurance costs a lot more.
  • Pre-pay electricity meters, which some energy companies insist on for some families on low incomes, cost more than paying by direct debit.
  • Buying nappies, for example, in bulk is not an option because the family doesn’t have enough money there and then at the till – they don’t have the opportunity to make savings that better-off people can make.

These items are all unavoidable, but the additional costs really shouldn’t be. Fair By Design will work with companies, government and regulators to get rid of the poverty premium. And they have funds available to those who want to try different approaches to ensure people on low incomes are able to access goods and services without having to pay more. The Fair By Design investment fund will “provide capital to help grow new and scalable businesses to innovate the market.”

Fair By Design’s roadmap sets out the huge numbers of people affected by the poverty premium, and why it exists. But most importantly, having worked with some of the leading experts on this issue, it sets out what can be done. It’s calling for businesses to work with low income consumers to ensure products and services are designed with them in mind. It wants regulators to work together to tackle the issue. And it wants the government to lead on a ‘Vulnerable Citizens Strategy’ and look into no-interest loan schemes. These are just some of the proposals.

The Fair By Design roadmap is titled: ‘being poor shouldn’t cost more”. It’s perverse that those with the fewest resources end up paying the most. This comprehensive campaign, which has broad support and funding to encourage innovation, is very welcome.