Reducing the Poverty Premium
In 2016 the Personal Finance Research Centre measured for the first time how many current low-income households are actually affected by poverty premium, and by how much.
The Poverty Premium is a term first coined in the 1960s to describe the idea that the poor pay more for essential goods and services. In the UK it’s an important, ongoing social policy concern that Bristol’s Personal Finance Research Centre (PFRC) have been actively involved with since the 1990s.
In 2016 PFRC's report ‘Paying to be poor: the scale and nature of the poverty premium’ revealed the average cost of the poverty premium to be £490 per household each year, lower than the previous estimate of around £1,300 per year (Save the Children, 2010). Yvette Hartfree from PFRC said “It is also important to remember that the poverty premium only reflects the additional costs low-income households pay compared to higher-income households. It doesn’t take into account the extent to which low-income households avoid paying poverty premiums simply because they can’t afford to and instead go without.”
Overall, the research confirmed that low-income households are ill-equipped to avoid premiums; the Report concluded that the supply and provision of goods and services does not adequately account for how people on low incomes often prefer to manage their money, or their sensitivity to the risks associated with upsetting close budgeting control. As such, there was clearly a role for providers, government and regulators to help address this: the clearest priorities for action related to insurance, higher-cost credit, and fuel.
JRF, in conjunction with Big Society Capital, which supports UK social investment, were to launch the Fair by Design (FBD) Venture Capital Fund. The Fund supports businesses whose services are aimed at reducing the poverty premium in four key sectors - financial services, energy, telecommunications and household goods. The IAA funding enabled the collaborative production of the multi-purpose Practical Guide to Making the Poverty Premium History.
The Guide provides an evidence-based foundation for organisations and policymakers addressing the poverty premium, including looking at the roles of business and government. Ascension Ventures, the company running the FBD fund, actively used the research to help guide their applicant choices and decisions, and linked to it from the FBD website, providing potential applicants with a good understanding of poverty premium.
The interim work was presented to a FBD all-parties meeting, including JRF, Big Society Capital, Ascension Ventures, Wayra UK, Barrow Cadbury Trust, and Comic Relief. And at the end of year, the PFRC team, together with JRF and Policy Bristol, were invited to the launch of All Party Parliamentary Group on Poverty enquiry into the poverty premium. Their presentation was followed by a panel discussion involving around 30-40 key stakeholders and policymakers, including Baroness Ruth Lister, Kevin Hollinrake MP, Heidi Allen MP, Patricia Gibson MP and Lord Jeff Rooker, along with representatives from the Equality Trust, Child Poverty Action Group, the Office of Lord John Bird, Social Market Foundation, Orbit Housing, Toynbee Hall, Ascension Ventures and others.
The Guide was also actively shared with the financial services and energy industries, partly through two well-attended Expert Workshops and other consortia meetings. These raised awareness of the poverty premium, the Guide and the Poverty Premium Fund among industry, non-profit organisations and regulators.
The profile of the Guide was such that further invitations in 2018 have included a Panel at theFair Consumer Markets for All Conference, held by the Social Market Foundation and JRF, attended by MPs, regulators, industry representatives and researchers.
The relationship with Fair by Design has continued to develop and grow. Sara Davies is currently working on measuring the impact of the fund, in conjunction with Ecorys, as well as assisting Fair by Design in the creation of a road map to reduce the premium, which they will present at the Political Party Conferences in Autumn 2018.