Fair by Design: Furniture Poverty and the Poverty Premium
People in poverty are forced to pay more for a range of essential products and services such as energy, credit, and insurance. This is called the Poverty Premium: the extra costs of being poor. Poverty is a driver of the Poverty Premium, and the Poverty Premium is, in itself, a driver of poverty. It’s a vicious cycle locking people into a situation where they continuously struggle to make ends meet.
It doesn’t sound fair and it isn’t, but it doesn’t have to be this way. Products and services can be designed to meet the needs of everyone. Fair By Design is a movement dedicated to reshaping essential services so they don’t cost more if you’re poor. We collaborate with industry, government, and regulators to design out the Poverty Premium. Our Venture Fund provides capital to grow new and scalable ventures innovating in the market.
What is the Poverty Premium?
Being poor costs more when the washing machine breaks down, or you move into an unfurnished tenancy, and your only options for buying the furniture or an appliance you need, are a payday lender or rent-to-own company, where you will end up paying up to double the recommended retail price. This is because you have been priced out of purchasing contents insurance, or cannot afford to pay the full amount up front.
It costs more when you’re not on the best energy tariff because you just don’t have the time to switch providers, or live in accommodation where you’re not even sure whether you can switch providers because you’ve never had that conversation with your landlord.
So how many people are we talking about?
There are just over 14 million people in poverty in the UK according to Households Below Average Income data, and the Social Metrics Commission. The Personal Finance Research Centre at the University of Bristol estimates that nearly three quarters (73%) of people in poverty pay a premium based an ‘area-based’ premium. That is around 10 million people – or more than 1 in 7 of the UK population.
Estimates for the average Poverty Premium paid annually by low income consumers, range from £256 (Social Market Foundation) to £490 a year (Personal Finance Research Centre, University of Bristol), but can be as high as £780 for those most highly exposed to the extra costs. This is a significant amount of somebody’s cash budget.
The Poverty Premium and furniture poverty
As the End Furniture Poverty Campaign rightly asks, when there isn't enough money for fuel, where does the money for furniture and appliances come from? Many families may revert to using the costly laundrette, paying more over the course of the year than if they had a machine at home. And while we know all too well the shocking figures on child poverty – what about its manifestation in a household with no space for children to do their homework?
Why does the poverty premium exist?
The unfair costs of living: Some people pay a Poverty Premium if they are considered too risky for, or excluded from, every day services such as insurance or credit. Moreover, living costs have increased faster for the poorest households than the richest. It’s a cruel irony that those least able to have to pay the most for their essential day-to-day services.
One size doesn’t fit all: products and services haven’t been designed with low income consumers in mind. Millions of people are on insecure zero hour contracts, or paid weekly with uneven income levels. They don’t have the money up front to make cheaper annual payments, and instead are charged high levels of interest to pay on a monthly basis.
The myth of the ‘super consumer’: very few people have the time or know-how to compare the prices of every product or service that they buy and then switch to better deals.
Eliminating the Poverty Premium is an urgent priority, but no one institution can achieve it alone. Government, regulators, businesses and other stakeholders all need to act together to design out the extra costs of being poor, to loosen millions from its grip.
Some housing providers, including Orbit, have found a solution in retaining the carpets and curtains when a property is vacated. Instead of taking them out at the end of a tenancy, the carpets and curtains are deep-cleaned by the housing provider and offered for free to the incoming tenant. In a pilot, Orbit found that this practice not only reduces costs of furnishing a property for tenants, or needing to borrow money at high cost, but increases timely rent payments – a win-win.
Another solution can be found with the new crop of ventures displacing the rent-to-own sector. Fair For You, for example, is a not-for-profit alternative to high cost credit, offering flexible, affordable and ethical loans for household items through their online ‘high-street.’ Customers buy directly from Fair For You’s suppliers by taking out a loan, and then pay later in flexible instalments. They pay what they can afford, when they can afford it, and the sooner they pay it off, the less they pay.
That is why eliminating the Poverty Premium relates closely to furniture poverty: the latter is a symptom of the former. By ensuring that low income consumers do not pay more than others for the same goods and services, we can ensure that households have access to the items that they need in order to live a good life.