Policy Library

Across Britain, consumers are cutting back in the face of a surging cost of living. With inflation at 11 per cent, the Office for Budget Responsibility predicts that living standards will decline by 7 per cent over the next two years and our material lives will worsen.

Yet some consumers already find themselves starting from behind, paying more for basic goods and services due to the way the market interacts with their choices, needs, and wants. The limited financial means of consumers on low incomes reduces their overall economic flexibility and creates more costly choices, which, in turn, serves to reduce their overall means. This cycle of paying over the odds makes up the poverty premium.

We estimate that nearly seven million people in Great Britain are paying multiple poverty premiums – this is where low-income households pay more than those on higher incomes to access essential products and services, such as insurance, credit, energy, and food. The latest estimates suggest, these premiums cost about £478 per year.

But the cost of these premiums is more than just financial. By reducing low-income consumers’ overall means, these premiums are responsible for decreasing their ability to access the basic building blocks needed to build a strong foundation from which to build. Without this foundation, a focus on a brighter, long-term future is more difficult to achieve and economic potential is left unlocked.

In Over the Odds, we show which premiums consumers report paying and how they are reacting to the increased cost of living. We outline a number of practical next steps for government and businesses to dismantle and alleviate premiums.