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Household Bills

Poorer consumers fork out 10% more on essentials

Your Money
Written By:
Your Money
Posted:
Updated:
15/06/2013

Poorest households in the UK are shelling out an extra 10p for every £1 they spend on essential goods and services.

According to research by Consumer Futures and the Joseph Rowntree Foundation, markets for utilities and financial services are failing those on the lowest incomes. 

The report highlighted that low income households need to spend between a fifth and a third of all outgoings on utilities and on buying larger items that they are most likely to purchase on credit.

These consumers have to fork out higher prices for utilities and credit due to the way in which they pay for these goods and services – therefore raising the cost of a minimum household budget by around 10%.

The report said the reason for this is that the way in which companies construct products and tariffs adds to the final cost of paying offline and not having direct debit.

Often poorer consumers use payment methods, like pre-payment meters, that cost them more because they are wary of getting into debt given the cost of credit.

Some consumers are thought to be “costlier to serve” than others, e.g. those using pre-payment meters or paying by cash or cheque for energy.

However, the report found that extra charges applied by firms cannot always be justified and that regulators should focus on making them drive down costs for these consumers, and to reflect those efficiencies in fairer prices and help all consumers access the best value deals in their markets.

Mike O’Connor, chief executive of Consumer Futures, said: “Consumers who are poor or vulnerable may always be with us but we can do more to make sure that markets do not make their position worse. The extent to which essential services meet the needs of low-income consumers is a basic test of the success or failure of markets. It is a test that has been failed too often and for far too long.

“Consumers should be able to access essential services at affordable prices and with appropriate level of service. If essential markets do not deliver accessible and affordable services to consumers on low incomes, then regulators, working with governments, need to intervene to make markets fairer or target support packages to make sure everyone has the essentials of life.

“The cost of many essentials such as energy and water are likely to rise and whilst we hope for a tide of economic growth which will lift all, poverty and vulnerability is not going to go away and indeed many people who are not seen as “poor” will struggle to meet household bills.”