Poverty ‘rip-off’ means low income families could be paying more than £1,000 over the odds for everyday goods and services

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Low income families in Greater Manchester could be paying over £1,000 a year more for goods and services such as energy, credit and insurance compared to those on middle and higher incomes, according to new research by Greater Manchester Poverty Action.

Known as the ‘poverty premium’, low income families across the UK can face higher costs for goods and services. For the first time, this new research quantifies the potential cost of the poverty premium for low income families here in Greater Manchester.

The extra costs are partly the result of restricted access to financial products such as overdrafts or low interest loans. This is due to variations in costs between different payment methods (e.g. people on low incomes are more likely to pay for energy through a prepayment meter), because people on low incomes are less able to buy in bulk or because of an inbuilt disadvantage within a marketplace (e.g. higher insurance premiums for people living in deprived areas).

Greater Manchester Poverty Action’s research shows how accessing credit, whether through loans or purchasing items from rent to-own stores, can work out considerably more expensive. The research finds that a £500 loan from payday lenders can cost £758 once fully repaid. Buying household goods like washing machines and cookers from rent-to-own stores in Greater Manchester can on average end up costing an additional £218.

Low income households are also hit in other areas of spending. For example, in Greater Manchester they are more likely to pay for electricity and gas through a prepayment meter which works out more expensive than paying monthly by direct debit. Higher premiums for insurance in deprived areas also hits low income families in the pocket.

Graham Whitham, Director of Greater Manchester Poverty Action said, “This poverty ‘rip-off’ sees low income families spending more on everyday goods and services and eats into already limited disposable income. At a time when poverty is increasing, and household budgets are under sustained pressure, it’s not right that people on low incomes face higher costs for essentials.”

Greater Manchester Poverty Action also considered other areas of spending where low income households could face extra costs and found that people shopping at local convenience stores in deprived parts of Greater Manchester could be paying 36% more for food and household items.

Alongside this research Greater Manchester Poverty Action carried out an in-depth questionnaire with over 100 residents from across the city region. The questionnaire highlighted the extent to which low income residents in Greater Manchester are at risk of the poverty premium, with:

• Two-thirds of low income residents saying they don’t have access to a bank account overdraft facility
• A quarter of low income residents saying they are having to borrow money to pay for everyday living costs and bills
• Half of low income residents saying they use a prepayment meter to pay for electricity and gas

Greater Manchester Poverty Action is calling for action by central government to help address the poverty premium, but also believes action locally can help protect low income households from paying over the odds. Specifically, Greater Manchester Poverty Action would like to see:

• Greater promotion of and support for credit unions in Greater Manchester so that more people can access low interest loans
• Support for food pantries (food clubs that provide food to people in return for a small membership fee) and other initiatives that directly combat the poverty premium
• Local authorities acting as the first port of call for people facing a financial crisis so that people are not driven into the arms of high interest lenders

Graham Whitham added, “We need to think about how we can address this problem locally for example, supporting credit unions in the work that they do so that more people have access to low interest loans, and promoting initiatives that directly mitigate against the poverty premium, such as food pantries. These would help people on low incomes save money and ease the financial pressures they are facing”.