Expensive being poor, charity warns

Expensive being poor, charity warns

Poorer families are forced to pay £1,000 more a year for energy bills and financial services because they cannot access the deals available to those on higher incomes, a charity said.

New Philanthropy Capital said this annual poverty premium took up an average of 9% of the income of poorer households.

It warned that financial exclusion exacerbated poverty, as it excluded people from the discounts that were available to those who paid by direct debit, as well as low-cost borrowing - forcing people into the arms of door-to-door money lenders who typically charged interest of 177%.

As a result it said life was "more expensive, more unstable and more stressful" for people who do not have access to appropriate financial products.

The group said around two million people in the UK do not have a bank account, while at least three million cannot get mainstream credit. Around half of the country's poorest households also have no home contents insurance.

The report warned that financial exclusion was likely to get worse as a result of the credit crunch.

It said the number of people forced to turn to expensive doorstep lenders was likely to "increase greatly" from its current level of three million as a result of increasing numbers of people being turned away by mainstream lenders.

The group is calling for more resources to be put into preventing financial exclusion through education to improve people's financial capability, as well as improving access to financial services.

Author of the report Simon Blake, senior analyst at New Philanthropy Capital, said: "Being unable to borrow at reasonable rates can make it very difficult to escape from poverty. Expensive credit swallows up cash, so instead of spending money on basic things they need, like food and clothes, people end up putting it all into loan repayments."

The report called for banking services to be made more "useful and relevant" to people on very low and fluctuating incomes to help tackle financial exclusion.