Martin Coppack, Director, Fair By Design.
Sherisha is a single mum to her 8-year-old daughter. Sherisha used to work full time as a social worker but has had to cut down to three days a week to support her daughter’s additional needs. This leaves Sherisha and her daughter with an income of £18,000 per year to get by on. The average household income in the UK is £29,900[1].
Due to her low income, Sherisha isn’t able to buy household essentials such as her new fridge freezer outright. Instead, she uses a catalogue, so pays interest each month on her purchase, meaning her fridge will ultimately cost her over 50% more than if she’d been able to buy it outright. Sherisha’s low income also means her car insurance costs her more as she pays for it in monthly instalments by direct debit. The excess on her insurance is also high. When she had an accident, she had to take out a payday loan to cover it. Months on she is still paying this loan off and is unable to save.
Sherisha’s story isn’t uncommon. Fair By Design estimates that the poverty premium (the additional cost of being poor) affects over 10.5 million people across the UK. The University of Bristol found that people can pay up to £300 more a year for car insurance because they live in a deprived area and their post code is considered ‘high risk.’[2] Like so many low-income households across the UK, Sherisha’s inability to absorb income shocks is exacerbated by her low income. She pays more because she has less to begin with. So why does this happen and why isn’t tackling the poverty premium a key part of the Government’s levelling up agenda?
Currently the Financial Conduct Authority (FCA) doesn’t have any statutory requirement to address or even take into account of, so called financial inclusion issues. But the Government’s review of the Future Regulatory Framework presents a golden opportunity to do just this. By giving the regulator responsibility to ‘must have regard’ to financial inclusion, it will ensure that the FCA routinely takes into account financial inclusion issues across its work. This will mean that resolvable issues such as universal access to affordable insurance or access to free cash machines will finally get addressed. This doesn’t mean the regulator will be pulled into carrying out social policy, but ensure that it considers financial inclusion across all that it does and decide who is best placed to act on those issues that continually fall between regulator and government. This should finally stop the merry go round and finger pointing on who should take responsibility for helping the most financially excluded in the UK.
This week, Fair By Design together with the Financial Inclusion Commission and a host of other signatories including Responsible Finance; industry players, L&G, Mastercard and Phoenix Group; consumer rights advocates such as Martin Lewis and StepChange Debt Charity; and supporters from across the political spectrum, wrote to the Economic Secretary, John Glen MP, calling on him to take this once-in-a-generation opportunity to ensure low-income consumers are no longer forgotten.
The Minister and the Government must not squander this opportunity to ensure that Sherisha and the thousands of people like her, are given a level playing field when accessing essential day-to-day services. Surely this is the true meaning of levelling up?
Find out more about the campaign here and here, and Fair By Design here.
Martin is Director of Fair By Design.
Fair By Design is dedicated to reshaping essential services, such as energy, credit and insurance, so they don’t cost more if you’re poor.
People in poverty pay more for a range of products including energy, through standard variable tariffs; loans and credit cards with higher interest rates; and expensive insurance premiums, by living in postcodes considered higher risk. This is known as the poverty premium.
They collaborate with industry, government, and regulators to design out the poverty premium. Its Venture Fund provides capital to help grow new and scalable ventures that are innovating to make markets fairer.
The Barrow Cadbury Trust runs its advocacy work, and Ascension manages the Venture Fund.
[1] ONS, Average household income, UK: financial year 2020, January 2021. www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyear2020
[2] University of Bristol, The poverty premium: A customer perspective, (2020).