Payment structures and price plans in utilities and financial services continue to inflict higher costs on the poorest in society.
Payment structures and price plans in utilities and financial services continue to inflict higher costs on the poorest in society. Regulators and the government need to do more, says Katie Schmuecker.
The poor pay more. It is a well-worn phrase but we must not let that undermine the impact of what it means in real life for real people.
A new report, published today, calculates the premium paid by poor people on essential utilities and access to financial services is as much as 10p in the pound - a significant extra cost for those that are already struggling to make ends meet.
This has a hugely detrimental impact on people's living standards, risking hardship and poverty. Taking what the public determine as an acceptable minimum standard of living in the UK today as its basis, the research shows a single person working full-time earning the minimum wage already falls £52 a week short of having a sufficient income to reach an adequate standard of living. If they're living in a house with high energy needs and subject to a poverty premium, this shortfall increases to £77 per week.
The gap is even greater still for those out of work and in receipt of benefits. If they live in a house with high energy needs, their low-income and the poverty premium combines to leave them some £135 per week short of a socially-acceptable standard of living.
These additional costs are driven by a number of factors. For example, in some instances general market failures result in uncompetitive or unfair practices that hit low-income consumers particularly hard, as they are less likely to have access to good information and more likely to be risk averse. In particular, worse-off consumers are often unable to access the best deals obtained by the most ‘active’ consumers that suppliers are keen to attract. This generates a cross subsidy in favour of better-off groups that is hard to justify.
Specific market failures and lack of competition can also result in the failure to supply products to meet the needs of low-income groups at competitive prices. Low-income households can find themselves disadvantaged by the payment methods they tend to favour, different patterns of usage or different credit needs. In some instances cost-reflective premiums - where there is an additional cost of supplying low-income families - result in them facing higher prices, but it is not always clear that the additional price is justified by the additional cost.
So while regulation aims generally to protect consumers by ensuring that markets work in a fair and transparent way, this report begs the question: do low-income consumers need additional protection? And if so, what should regulators and government do?
One response is to ensure fair trading and promote competition, with adequate information for the consumer: this is the central role of regulators. However, it cannot be assumed that this alone will provide sufficient protection to consumers in a weak market position.
At the very least, regulators should monitor the position of low income consumers, looking closely at the products they disproportionately use and whether they are fairly priced. Where problems are identified in the supply of essential services, regulators should have a remit to investigate the structure and level of pricing. In these instances regulators and the government should look together at the case for intervention to ensure basic products are available at affordable prices.
With the cost of living uppermost in many minds, and at a time when many incomes - whether from earnings or benefits - are either static or shrinking, regulators may find themselves with an increasingly important role to play in seeking out and removing poverty premiums. Tentative steps in this direction are already being taken in the financial services and energy markets. Where they are leading, others should follow.
This blog was first published in the New Statesman.
Read more about our work on Minimum Income Standards.