The poor are still paying more for basic utilities and financial services

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.

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.

Katie Schmuecker is a Policy and Research Manager for the Joseph Rowntree Foundation (JRF).

New research shows many already falling £52 short of an adequate standard of living. When in a house with high energy needs, this increases to £77. Photograph: Getty Images.
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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.