The “poverty premium” hits the most vulnerable in society
With the rapid increase in the cost of living, some households are struggling with an additional “poverty premium”. Many of us are paying more for daily bills as households grapple with a rising cost of living, but some are paying an extra ‘poverty premium’ on top of that, for services that many of us we can take for granted.
This means that some people may end up being charged more for services or find them difficult to access. There are other ramifications too – affected individuals may have fewer borrowing options and end up paying more for a loan if they’ve had difficulty with credit in the past, or they may struggle to access to banking services. Comparing costs can also be difficult if the Internet is not easily accessible.
Someone may also end up paying more for their insurance if they live in an area with a high crime rate, or maybe they find it more difficult to easily access cash in their community. . Search with whom? indicates that some of the more deprived areas, where people are more likely to rely on cash, have seen a significant shift away from free ATMs in the past.
Richard Lane, director of external affairs at StepChange Debt Charity, told the PA News Service: “The poverty premium overlaps massively with problematic debt. People in debt are more likely to have to pay more for goods and services, such as being put on prepayment energy meters, and only being able to access high-cost credit, rather than means affordable to borrow for essential items.
How can citizens reduce the poverty premium?
There are potential ways to reduce the premium. Being on the voter rolls could help some people improve their credit score, and some credit reference agencies also consider rent payments, for example.
Lane says, “There are little things you can do that can all add up to help improve your financial situation. Having an appropriate budget that realistically accounts for all your essential income and expenses should be your starting point.
“Then see if there are any costs you can reduce – you may not be able to reduce your energy bills at the moment, but can you get a cheaper broadband deal, or are you eligible at social rates?
“Ask your suppliers how they can help you reduce your costs. See if you can trade higher-cost options for lower-cost options: can you group up with friends to buy cheaper storage products in bulk? Can you claim benefits or get support from your local council? »
The soaring cost of living is putting household budgets under pressure, with some having to choose between heating and food.
Here are some resources available if you need help.
Advice to citizens
Citizens Advice is an independent charity providing free, confidential assistance with legal, consumer, housing, debt and other issues. Its website details the help available and where your nearest office is, for face-to-face advice.
Helpline : 0800 144 8848 in England / 0800 702 2020 in Wales (open 9am to 5pm Monday to Friday)
The Trussell Trust
The Trussell Trust supports a national network of over 1,200 food banks, providing free emergency food to those in need. You can use its website to locate support wherever you live.
Hotline: 0808 208 2138 (open 9 a.m. to 5 p.m. Monday to Friday)
Turn2us is a national charity that provides practical support for people in financial difficulty. Its website includes a benefits calculator and details about programs and subsidies in your area, including for energy and water bills.
Hotline: 0808 802 2000 (open 9 a.m. to 5 p.m. Monday to Friday)
For those who are really struggling, he says, “Don’t be tempted to try to borrow your way out of trouble by taking out more loans. If you are already late, it will only make your costs even higher and your debt even more unaffordable. Instead, check out organizations that can help you. If you are in debt, StepChange, Citizens Advice (citizensadvice.org.uk), National Debtline (nationaldebtline.org) and other charities can all help you find a solution.
What do we do to reduce the premium?
Industry representatives say they have been working to resolve the issue. Peter Tyler of the trade association UK Finance (ukfinance.org.uk), which represents the banking and finance industry, said: “Financial inclusion and access to banking services is a key priority for UK Finance and its members.
“The sector has significantly reduced the number of adults considered ‘unbanked’ and provides basic bank accounts to more than seven million consumers who would otherwise struggle to access basic banking services.
“Tailored support is also provided to a range of groups, such as prisoners, homeless people and refugees, to help them access the banking system, with the prisoner banking program opening over 4,000 basic bank accounts in the first nine months of 2021.
“Ensuring access to cash is another important issue and the banking and financial sector has publicly committed to maintaining access to cash for those who need it. In December 2021, the Access to Cash Action Group showcased a range of solutions, including shared banking hubs and free ATMs, as well as no-purchase cashback in stores.
The UK government has also said it will legislate to protect the future of cash. Meanwhile, the Association of British Insurers (ABI) says companies are committed to providing competitively priced, value-for-money insurance to as many people as possible.
An ABI spokesperson adds: “The cost of hedging reflects the risk. However, insurers recognize that low-income people, many of whom may need insurance the most, will need extra help, which is why some products – such as contents insurance policies for low-income tenants – can be tailored to their needs.
“We are committed to working with regulators and other organizations as an ongoing priority, to meet the different needs of customers and people in vulnerable situations. Insurance remains a competitive and innovative market and people should shop around and consider using an insurance broker to get the right policy for their particular needs at the best price.
Nisha Arora, director of consumer and retail policy at the Financial Conduct Authority, said: “Customers can find themselves in vulnerable circumstances at any time – including those experiencing financial difficulty. That is why we have published our guidance on the fair treatment of vulnerable consumers.
“We have intervened on behalf of consumers on several occasions – through our work during the coronavirus pandemic, with reforms to overdrafts and other high-cost credit, and by fighting the loyalty penalty for home and auto insurance. We are also taking steps to ensure continued access to cash. »
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