For the purposes of this report, we can understand the poverty premium to occur for one or more of three key reasons:

• Additional costs directly resulting from having a low income, for example because this reduces the flexibility of payment methods;

• Additional costs associated with a low income even though not directly resulting from it, for example the additional chance that someone on low-income lives in a high-crime area where insurance premiums are high; and

• Additional costs that can be experienced by people across income groups, but are more likely to be experienced by lower-income households, such as not “shopping around” for utility tariffs, and which place a disproportionately high burden on low-income households’ resources.

The Poverty Premium – When low-income households pay more for essential goods and services by Sara Davies, Andrea Finney and Yvette Hartfree; University of Bristol, School of Geographical Sciences , November 2016

Notes from the Introduction:

The notion of the poverty premium was first conceived by American sociologist David Caplovitz in 1963. The term is used to describe how poor people pay more for essential goods and services compared to those not in poverty. In the UK the poverty premium has been highlighted as an important social policy concern by charities and organisations working with low-income families. In 2010 Save the Children illustrated the nominal cost of the poverty premium at £1,300 per year and showed how those on low-incomes paid more for fuel, telecommunications, insurance, accessing cash and accessing credit.

This study makes a significant contribution to moving forward our knowledge of the poverty premium in the UK. It takes a fresh look at understanding why the poverty premium arises and analyses new consumer data to show how the poverty premium is actually experienced.