New report highlights 'poor choices' available to Britain's low income consumers
Consumer champion energywatch has published research led by the University of Greenwich, which reveals how low income households are failed, not only in the energy market but across seven essential services.
The research, led by Professor Steve Thomas of the university’s Public Services International Research Unit and drawing on other sectoral experts, examines the food, housing, water, telecommunications, public transport, financial services as well as the energy sector.
The report, published today, is called “Poor choices: the limits of competitive markets in the provision of essential services to low income consumers.”
Professor of Energy Policy Steve Thomas says: “The increasing reliance on markets for the delivery of essential goods and services places additional burdens on households, especially low-income households, to shop around to get the best deal.
“In many cases, these markets are stacked against low-income households. The best deals are only often available to those who have full-service bank accounts and the skills and equipment to search the internet. Energy is perhaps the sector where low-income households get the worst service. Consumers that can pay by Direct Debit and operate their account on-line pay on average 20% less than other payment methods.”
Allan Asher, energywatch Chief Executive, says: “Failure of competitive markets harms all consumers, but the costs – in the form of higher prices – are particularly detrimental to those on low-incomes. Policy makers increasingly rely on markets to deliver outcomes for low income consumers. It should not be a surprise that this is rarely successful.
“energywatch has been critical of the treatment of low incomes consumers in the energy market. We wanted to see how these consumers were treated in other markets and whether we could draw positive lessons for consumer protection for low income energy consumers.
“The timing is appropriate. The last twelve months have seen the mushrooming ‘credit crunch’ wreak havoc on the financial services and housing sectors; as well as unprecedented oil prices and spiralling fuel and food bills. These events have made all households much more attuned to the functioning, or, in some cases, malfunctioning, of markets. As the findings of this report demonstrate, the impact will be most severe for those already struggling to make ends meet; and who in a number of instances will have already been paying premium prices.“
Make the consumer - not the market – work:
The report confirms that low-income consumers frequently lack access to the ‘entry requirements’ for markets. These are commonly a direct debit facility, internet access and the basic consumer skills required to navigate and take advantage of offers available in markets. This can mean that choice is often little more than illusory for this group.
In energy, rather than make the market work for consumers, the regulator has been content to make consumers work in the market. Search costs are high (lack of internet access, unsure how to navigate deals and exposed to doorstep mis-selling), and the best deals are frequently closed off to this group (direct debit is not an option, leaving consumers reliant on the most expensive methods),
Poor pay more:
A need to control limited budgets by ‘pay as you go’ too often sees low-income consumers pay a premium for a non-premium service. In energy the prepayment premium over online tariffs stands at an average of £300 and remains the most blatant manifestation of market bias against low-income consumers.
Off the radar:
Low spending power renders low-income consumers commercially unattractive, with few, if any, providers seeing a business case to compete for their custom. Providers that do will often do so on punitive terms. The resultant lack of competitive pressures leaves low-income consumers exposed to higher prices. The inability of energy suppliers to establish effective social tariffs shows how marginal the needs of low income consumers remain for many energy companies.
ENDS
Editors’ notes:
· The report can be found at http://www.psiru.org/reports/PoorChoices.pdf
· The research, “Poor choices: the limits of competitive markets in the provision of essential services to low income consumers”, was led by the Public Services International Research Unit at the Business School, University of Greenwich. The Unit specialises in public policy on services including water, energy, waste management and healthcare, researching issues like the impact of privatisation and introducing competition to utilities.
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