Reducing rising household bills by making markets work for consumers is vital to tackle poverty, says Matthew Oakley of Which?
Much of the debate around poverty both in the UK and internationally focuses on ensuring that household incomes hit a certain absolute or relative level. However, without considering how those incomes are spent, this will only ever be a partial picture.
Forthcoming Which? research using the ONS Living Cost and Food Survey shows that since 2003/04, the proportion of median household spending going on housing, utilities and communication has increased by over five percentage points. Put another way, in today’s prices that means around £1,500 less money to save, invest and spend on other goods and services that boost living standards.
For those on the lowest incomes, some 43% of household spending now goes on housing, utilities and communication, the same research shows. This means that, alongside targeting incomes, any approach to tackling poverty in the UK must also consider how those incomes can go further by ensuring consumers can get the quality of goods and services they need and want for the very best value for money.
Part of this is about ensuring that consumers have the information they need to make informed choices and drive effective competition: incentivising firms to innovate and deliver better goods and services at lower prices. The newly-formed Competition and Markets Authority (CMA) and the individual sector regulators have a key role in ensuring their powers are used effectively to bolster competition in the markets they oversee. But it is also clear that, when thinking about tackling poverty, targeting competition will not always be enough.
This is apparent in the previously nationalised, economically regulated industries where the recent National Infrastructure Plan outlined more than £250 billion of investment up to 2020. Some £151 billion of this is to be privately financed and we know that this will ultimately fall on consumer bills. However, as the Public Accounts Committee has recently highlighted, no attempt has been made to measure the scale of bill rises we might expect overall or, more specifically, what this will mean for low-income households. Improving transparency and accountability and commissioning independent scrutiny in this area should be priorities for both regulators and government.
Consumers on lower incomes can also face particular problems such as the high cost of consumer credit they often face. The forthcoming Which? research also shows that, last month, around one in four households in the lowest 20 per cent of income groups used an overdraft to cover their monthly spending. Around 5 per cent used a payday loan.
The problems surrounding grossly disproportionate and often opaque charges and default fees in these markets are well documented and it is encouraging that the Financial Conduct Authority is taking action here to cap the cost of credit. However, reliance on this form of credit can be just the tip of the iceberg, with debts potentially mounting across a number of areas including utility bills, housing payments and credit cards.
These are just two examples of where markets are not currently working for consumers. Similar issues can be found across a range of sectors and industries. Tackling these issues and ensuring that markets truly work for all consumers would mean boosting outcomes and living standards for all households and, in doing so, would be a vital part of any approach to tackling poverty.