A cruel irony of modern capitalism is that people in poverty are forced to pay more for many essential products and services. This is what is known as the ‘poverty premium’ – the extra cost of being poor. Poverty is a driver of the poverty premium, and the poverty premium is, in itself, a driver of poverty. It is a vicious cycle that locks people into high costs, debt and having to go without. In the context of austerity, the poverty premium is yet another element of the tsunami of low and stagnant wages, insecure employment and increasing living costs.
What is the poverty premium?
Being poor costs more when the washing machine breaks down and your only option for buying a new one is to approach a payday lender or a rent-to-own company, which can cost up to three times the retail price. This is because you can’t afford to pay up front for a new machine, or are priced out of purchasing contents insurance. And if you manage to get a new appliance, you probably don’t have the best energy tariff as you just don’t have the time to switch providers, meaning that you pay more for your electricity. That’s all before you account for the additional charges incurred for paying monthly and not by direct debit, which is the only way you can manage.
So how many people are we talking about? In the UK there are just over 14 million people in poverty according to Households Below Average Income data and the Social Metrics Commission. The Personal Finance Research Centre at the University of Bristol estimates that nearly three quarters (73%) of people in poverty pay a premium for their energy. That is around 10 million people – or more than 1 in 7 of the UK population – who are forced to pay more because they are poor.
