Research and analysis

Consumers on low incomes: summary of stakeholder roundtable

Updated 13 November 2018

On 7 June 2018, the CMA and Joseph Rowntree Foundation (JRF) jointly hosted a roundtable discussion on consumers on low incomes.

The roundtable focused on the challenges experienced by consumers on low incomes in different markets and the potential solutions to these challenges. The roundtable was part of the CMA’s work on consumer vulnerability.

The roundtable comprised presentations by JRF, the CMA, NatCen and Fair by Design, and plenary discussions. Representatives of government departments, regulators, consumer associations, charities, think tanks and business attended the roundtable (full list of the organisations). The roundtable was held under Chatham House rules.

The remainder of this summary sets out the key points from the presentations and some of the issues raised during the plenary discussions.

Understanding the challenges

Speaker presentations

JRF presented on the key challenges faced by consumers on low incomes including the ‘poverty premium’. The ‘poverty premium’ is the idea that consumers on lower incomes may pay higher prices for the same goods and services as consumers on higher incomes in certain markets.

JRF said the poverty premium affects consumers differently, according to individual circumstances and the specific market context. JRF said the poverty premium exists in many markets. For example, in the credit market (because of the greater APR for sub-prime borrowing), fuel market (as a result of low income consumers not using direct debits and being less likely to switch supplier) and housing market (there are higher lifetime costs from renting compared with home ownership). JRF said the solutions to ending the poverty premium lie in concerted action from regulators, governments, industry, consumers and those providing consumers with advice and support.

The CMA said there is mixed evidence on the experiences of consumers on low incomes. While the CMA found in its energy market investigation that consumers on low incomes were less likely to engage and did experience a ‘poverty premium’, it had not found any ‘poverty premium’ in its retail banking market investigation. The CMA said there was a need for further evidence on the outcomes experienced by consumers on low incomes and how these can vary between markets. The CMA reported that it had commissioned research from NatCen to look into the scope for developing a robust methodology for measuring the ‘poverty premium’ across different markets.

NatCen set out some of the key challenges in measuring the ‘poverty premium’. These included the difficulty in making ‘like for like’ comparisons in some markets, given the potential differences in the quality of goods and services purchased. NatCen highlighted some markets, notably housing and transport, where there was potential for poverty premiums to arise and considered how these could be measured. NatCen also referred to the food and drink market where some existing research suggested the prices paid by consumers on low incomes did not differ greatly from the prices paid by consumers on high incomes. NatCen suggested that exploring those markets in which consumers on low incomes appeared to be able to achieve reasonable outcomes could be helpful in considering practical remedies in more problematic markets.

Plenary discussion

During the plenary discussion on the challenges facing consumers on low incomes, the following points were raised.

• Being a consumer on a low income can be correlated with other aspects of vulnerability, such as physical disability, mental ill-health and old age. There may be other, related factors too. There is a need to consider all these issues when developing measures of the ‘poverty premium’.

• There is potential for ‘poverty premiums’ to have place-based or community related elements. For example, in London, cycling infrastructure has been added to roads to increase cycling. However, those people cycling are typically on higher incomes and this infrastructure can adversely affect journey times by bus, which is a frequent mode of transport for those on low incomes. If policymakers do not fully consider the many ways in which ‘poverty premiums’ may play out, they can unintentionally reinforce inequalities for different groups of consumers.

• The quality of goods/services, the cost of these and the extent to which consumers on low incomes have choice or are constrained in what they purchase, are key to understanding any ‘poverty premium’ in each market.

Developing solutions and remedies

Speaker presentations

The CMA provided an overview of its approach to developing remedies and its ‘remedies universe’ (the range of interventions that could help make markets work well for consumers). The CMA explained that a ‘perfect’ market solution was unlikely; there was a need to consider and build into any solution how consumers behave, the incentives for them and the constraints they face. This more ‘bottom up’, consumer-based approach to developing solutions could improve their effectiveness. Testing and evaluating remedies was also essential.

Fair by Design, which comprises a joint venture fund and awareness-raising campaign, presented a number of practical examples of solutions that have been developed to address the challenges faced by consumers on low incomes. These included:

• Credit Kudos, which makes use of open data sharing to produce credit scores based on a consumer’s online banking behaviour;

• Our Power – a not for profit energy supplier;

• Robin Hood Energy – the first local authority owned energy provider

• Fair for you – a credit provider who may provide lower rates and flexible instalment payments as an alternative to rent-to-own providers.

Plenary discussion

During the plenary discussion on the solutions to the challenges facing consumers on low incomes, the following points were raised.

• Facts matter. There is a need for more granular data to build an evidence base and better understand the experiences of consumers on low incomes. This should include quantitative research but also qualitative research that captures the experiences of consumers on low incomes and their views.

• Risk-based pricing can be unfavourable to consumers on low incomes and reinforce/create the effects of a ‘poverty premium’ in some markets (eg insurance premiums related to geographical locations). In some cases, it is unclear what proportion of the additional cost can genuinely be attributed to higher risk. This could be a potential area for further research and there may be a role for government and regulators in this area.

The following were suggested as potential avenues to explore when developing solutions for the challenges facing consumers on low incomes.

• Technological developments and the shift to digital markets, including increased data sharing. For example, the use of smart meters in the energy market. There could be data-driven remedies and tailored market offers for consumers on low incomes.

• Peer-to-peer and/or community based lending options. These are potential solutions to some of the financing challenges faced by consumers on low incomes.

• Businesses adapting their models to reflect more innovative, ‘social impact’ models. However, it is not clear if the incentives exist for firms to do so. There may be a need to demonstrate how businesses can operate profitably by addressing the needs of those on low incomes.

• Increase awareness of the innovative solutions that already exist, for example social enterprise and investment models. This could improve take up of these services by those on low incomes and enable scale up of these services.

• Existing interventions that help coordinate smaller, fragmented markets. They may already offer solutions eg through the use of credit unions.

The following were suggested as potential factors to consider when developing solutions to the challenges facing consumers on low incomes.

• Risk-pooling and identifying those who slip through the net. There are various aspects to consumer vulnerability which need to be reflected in any solutions.

• Partnership working and more collaborative approaches, for example between regulators. They can improve the effectiveness of solutions.

• The increasing role for intermediaries in providing support to consumers on low incomes to help them navigate markets.

• The need to engage with consumers on low incomes to understand their experiences. Such consumers know what they need and can help develop solutions that are effective.

Organisations which attended the roundtable

• Age UK
• Advertising Standards Authority
• Department for Business, Energy and Industrial Strategy
• Child Poverty Action
• Citizens Advice
• Consumer Council for Water
• Demos
• End Child Poverty Coalition
• Essential Services Access Network
• Fair by Design Campaign (Barrow Cadbury Trust)
• Financial Conduct Authority
• Financial Ombudsman Service
• Frontier Economics
• Fuel Poverty Action
• Hartlepool Action Lab
• Institute for Fiscal Studies
• Lending Standards Board
• Money & Mental Health Policy Institute
• Money Advice Service *Money Advice Trust
• National Union of Students
• Octo Energy
• Ofcom
• Office of National Statistics
• Ofgem
• Social Market Foundation
• The Young Foundation
• Toynbee Hall
• UK Regulators Network
• University of Bristol, Personal Finance Research Centre
• Which?